China Freezes Trading in 1,300 Companies, Locking Up 40% of Market Cap 

A wave of Chinese companies halted trading in their shares and regulators unveiled new measures to prop up the value of small-cap stocks in the latest attempts to stem a rout that’s wiped more than $3.5 trillion of value.

At least 1,323 companies have halted trading on mainland Chinese exchanges, locking up $2.6 trillion of shares, or about 40 percent of the market’s capitalization. China Securities Finance Corp. is seeking at least 500 billion yuan ($80.5 billion) to support equities, people familiar with the matter said Wednesday, after the central bank said it would provide “ample liquidity” to the market. Margin requirements were raised on small-cap index futures, while state-owned companies were ordered not to sell shares.

The measures, which follow stock purchases by state-directed funds and an interest-rate cut in recent weeks, failed to revive confidence among stock investors. Selling by leveraged traders is weighing on the market, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling by a record 8.5 percent on Tuesday.

The authorities have “not only failed to stabilize the market, they have actually increased panic levels,” Alex Wong, Hong Kong-based asset-management director at Ample Capital Ltd., which oversees about $129 million, said by phone. “We are reducing exposure, raising cash levels and trying to stay out of the market.”

The Shanghai Composite Index fell 3.9 percent at the noon-time break, heading for its lowest level since March 19. The Shenzhen Composite Index lost 3.3 percent. Margin traders cut positions for a record 12th day Tuesday, while foreign investors sold Shanghai shares at the fastest pace ever this week.

Affect Confidence

On the Shanghai exchange, 353 companies suspended trading, acounting for 32 percent of all listings. Another 970 were halted in Shenzhen, comprising 55 percent of the total.

“The latest development of trading halts will affect investor confidence, and suggests that China may not be ready for more international participation,” said Bernard Aw, a strategist at IG Asia Pte Ltd. In Singapore. “Individual traders will still offload the counters when trading resumes, unless there is a considerable change.”

The People’s Bank of China said it will “actively assist China Securities Finance to obtain ample liquidity,” through channels including loans and bonds. The PBOC will pay close attention to market moves and do whatever it can to prevent systemic risks, it said.

Foreign Selling

The final amount China Securities Finance — which manages the nation’s short selling and margin trading — is seeking has yet to be determined and may be far more than 500 billion yuan, acccording to the people. The body will buy more shares of smaller companies to ease a liquidity squeeze and restore market order, China Securities Regulatory Commission spokesman Deng Ge said Wednesday.

The Shanghai Composite has tumbled 32 percent from its June 12 peak, while the smaller Shenzhen Composite Index has lost 41 percent.

The outstanding balance of margin debt on the Shanghai bourse fell by 93.5 billion yuan Tuesday, the most since the data began in 2010. Overseas investors have net sold 28.4 billion yuan of mainland shares this week, the most since the program began in November.

The China Financial Futures Exchange raised margin requirement for sell orders on CSI 500 Index futures to 30 percent for July 9 settlement, according to a statement on its Weibo.

More Orders

Contracts on the CSI 500 gauge of smaller companies fell as much as 10 percent, the daily limit, in Tuesday trading. The futures lost 5.4 percent Wednesday, while the underlying measure dropped 1.6 percent.

The Assets Supervision and Administration Commission ordered on Wednesday state-owned enterprises not to cut holdings of stocks of their listed companies.

“The selling in China will continue for some time,” said Audrey Goh, investment strategist at Standard Chartered Plc in Singapore. “We need policy makers to come up with more measures to try to restore confidence in the market. The suspension in trading of a number of companies in mainland exchanges isn’t helping to assure investors.”

Source: Bloomberg – China Freezes Trading in 1,300 Companies, Locking Up 40% of Market Cap

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