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

Sun Jul 5, 2015 3:17am EDT
 
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By Michael Martina and Samuel Shen

BEIJING/SHANGHAI (Reuters) - Beijing intensified efforts at the weekend to pull China's stock markets out of a nose-dive that is threatening the world's second-largest economy, with top brokerages pledging to buy massive amounts of shares and a report that the government has set up a market stabilization fund.

Beijing has also suspended new share offers in an attempt to take pressure off the market after a 30 percent plunge in three weeks, the Wall Street Journal said.

The 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 stock 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 just a few weeks ago, posing a bigger headache for many global investors than even the Greek debt crisis.

The main Shanghai Composite Index has lost nearly a third of its value since mid-June, a dramatic end to an equally breathtaking rally that saw it more than double in just seven months, fueled 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 yuan ($645 billion).

China's stock markets are dominated by retail investors, and a full-blown collapse could fuel fears of panic. State TV said on Sunday police had detained a man who allegedly spread rumors about people jumping off buildings after the share crash.   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