China curbs IPOs, enlists brokers in all-out bid to end market rout

Sat Jul 4, 2015 1:22pm EDT
 
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By Michael Martina and Samuel Shen

BEIJING/SHANGHAI (Reuters) - China froze share offers and set up a market-stabilization fund on Saturday, the Wall Street Journal said, as Beijing intensified efforts to pull stock markets out of a nose-dive that is threatening the world's second-largest economy.

Beijing's reported suspension of initial public offers (IPOs) came a few hours after extraordinary announcements by major brokers and fund managers, which collectively pledged to invest at least $19 billion of their own money into stocks.

China's government, regulators and financial institutions are now waging a concerted campaign to prop up the nation's two main share markets, amid fears that a meltdown would rock the financial system and inflict heavy losses across an economy where annual growth is already running at a 24-year low.

Almost $3 trillion in market value - more than the entire economic output of Brazil - has been wiped out since markets went into reverse last month, posing a bigger headache for many global investors than even the Greek debt crisis.

The main Shanghai Composite Index .SSEC has lost around 30 percent of its value in three weeks, a dramatic end to an equally breathtaking rally that saw it more than double in just seven months, fuelled by official interest-rate cuts.

The sell-off is especially worrying because the bull market had been built on a mountain of speculative loans. Some analysts suggest total margin lending, both formal and informal, could add up to around 4 trillion won ($3.6 billion).

The stock markets are dominated by retail investors.

China's top brokerages said on Saturday they would collectively buy at least 120 billion yuan ($19.3 billion)   Continued...

 
An investor is reflected on an electronic board showing stock information at a brokerage house in Shanghai, China, July 3, 2015. REUTERS/Aly Song