China cuts IPO amid stock drops

2015-07-04 09:51Global Times Editor: Li Yan

Steep stock price decline far from a disaster: analysts

China will cut initial public offerings and support long-term investors entering the market to curb plunging share prices, authorities said Friday, after shares closed sharply lower, suffering a slump of nearly 30 percent since mid-June.

The benchmark Shanghai Composite Index Friday went down 5.77 percent to finish at 3,686.92 points. The Shenzhen Component Index plunged 5.25 percent to close at 12,246.06 points.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, dropped 1.66 percent to end at 2,605.28 points.

China Securities Regulatory Commission's (CSRC) announcement on Friday that it would reduce the number of the Initial Public Offerings (IPOs) in early July to 10 in the latest effort to stabilize market prices, as a sizable chunk of investors' money is frozen during the IPO subscription process, causing share prices to fall.

In April the CSRC decided to approve two batches of IPO applications. Forty-five new shares were listed in May and 47 in June, causing concern about a glut of shares.

The stock market has lost around 29 percent of its value since its peak of 5,178.19 points on June 12.

A steady drumbeat of government easing policies including interest rate cuts and a reduction of securities transaction fees has failed to reverse the trend.

At Fridays' conference the CSRC also said that China's official margin lender for brokerages, which makes loans available for stock market investment, will boost its capital base to 100 billion yuan from 24 billion yuan to expand its business.

The People's Bank of China (PBOC) also rolled over 250 billion yuan of medium-term loans to banks late on Friday to ensure adequate liquidity in the system.

Although the easing polices have not arrested the falling prices, experts have said that the decline is far from a "stock market disaster."

Yu Pingkang, chief macroeconomic analyst at HuaTai Securities Co, Ltd in Shenzhen, told the Global Times that the sharp sell-off by investors using borrowed money led to the stock market plummet and the big drops over the last few days have forced them to sell their stocks to avoid greater losses.

Yu predicted that as the factors that created the bullish stock market still exist - the central government's loose monetary policy, accelerated economic reforms as well as the diversified asset allocations of residents - the A-share market may rise or even exceed 5,000 points again after a time.

Some people have said that big drops in the highly leveraged stock market would affect banks and brokerages and put more pressure on the Chinese economy.

Chinese Premier Li Keqiang said when speaking a business summit in Toulouse at France Thursday that China is cultivating a transparent, stable and healthy capital market.

China is taking steps to counter downward pressure by promoting structural reform and making the country's proactive fiscal policy more effective, he said.

The CSRC Thursday announced that it would hunt down suspected market manipulators as unusual activities were detected in the stock and futures exchanges.

Rumors are flying that short-selling by foreign investors has caused the market slide.

Xu Gao, chief economist at Everbright Securities, said that panicky investors caused the drops on Friday and added there is no reason to blame foreigners since their impact cannot be too great due to their limited access to the A-share market as well as the quotas set on their investments.

Xu said that it was right for the government to enact policies right away to stabilize the stock market and thus stabilize financial markets.

Reducing the number of IPOs will enhance public confidence in the stock market but more government measures are likely to be announced, he said.

Xu added that the A-share market plummet will have little overall impact on China's economy since the stock market only contributes less than 5 percent of China's total social financing.

"The bull stock market spawned by high leveraged financing has come to an end. But it is still hard to say where the whole stock market will go in the future. There is no precedent in China of the stock market being pushed high by excess liquidity," he noted.

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