China moves to halt crisis in markets

Beijing intensified efforts at the weekend to pull China’s stock markets out of a nosedive 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 stabilisation fund.

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

The reported suspension of 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, fuelled by official interest-rate cuts.

China’s stock markets are dominated by retail investors, and a full-blown collapse could fuel fears of panic.

State TV said yesterday that police had detained a man who allegedly spread rumours about people jumping off buildings after the share crash.

Repeated attempts by regulators over the last week to stabilise markets — including an interest rate cut, a relaxation of margin-lending rules and additional bank liquidity — have failed to reassure panicky investors so far.

But Samuel Chien, a partner of Shanghai-based hedge fund BoomTrend Investment Management Co, said that he’s ready to pile into blue-chip stocks this week, betting the more aggressive weekend measures would trigger a rebound.

Brokerages have promised not to sell their new holdings as long as the Shanghai Composite Index is below 4,500 points, well above current levels of 3,684, Chien noted. That new buying, if it occurs, should blunt selling pressure.