Chinese Trading Suspensions Freeze $1.4 Trillion of Shares Amid Rout
Investors flee from China stocksChinese companies have found a guaranteed way to prevent investors from selling their shares: suspend trading.
Almost 200 stocks halted trading after the close on Monday, bringing the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges, according to data compiled by Bloomberg. Most of the halts are by companies listed in Shenzhen, which is dominated by smaller businesses.
The suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and are becoming increasingly popular as equity prices tumble. If not for the halts, a 28 percent plunge in the Shanghai Composite Index from its June 12 peak would probably be even deeper.
“Their main objective is to prevent share prices from slumping further amid a selling stampede,” said Chen Jiahe, a strategist at Cinda Securities Co.
Later, the number of halts requested increased to more than 1,200, the 21st Century Business Herald said, citing exchange data. The Shenzhen Stock Exchange will reject unjustifiable applications for suspensions, QQ.com reported, citing an unidentified person familiar with the matter.
The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India’s entire stock market. The Shenzhen Composite Index has led declines with a 38 percent plunge since its June 12 peak, as margin traders unwound bullish bets.
In the U.S., there are 121 halted companies comprising less than 0.2 percent of market capitalization. In Hong Kong, 186 firms are suspended, representing 4.7 percent of the city’s equity market capitalization.
Deter Investors
Searainbow Holding Corp. halted trading on Friday in Shenzhen after losing 54 percent in just three weeks. The company, which makes chemical fibers and online games, had surged 150 percent this year through its high on June 11. Wuhu Shunrong Sanqi Interactive Entertainment Network Technology Co. suspended its shares on Monday after a six-day, 34 percent plunge. The stock is still up 99% this year.
The Shenzhen Composite plunged 5.3 percent at the close Tuesday, while the Shanghai gauge lost 1.3 percent.
China shares continue to trade erraticallyU.S.-traded Chinese stocks plunged the most in four years as the rout that’s wiped $3.2 trillion from the value of mainland equities spreads.
Chinese American depositary receipts tumbled 5.1 percent as of 12:42 p.m. in New York, extending their slump to 18 percent from this year’s high. Alibaba Group Holding Ltd. tumbled to the lowest since its initial public offering, while JD.com Inc. sank as much as 12 percent.
“Investors are fleeing anything associated with China,” Brendan Ahern, chief investment officer at Krane Fund Advisors LLC in New York, said by phone on Tuesday. “They don’t want to have anything related to China in their portfolio. Investors are reading the risks around China, and there is a spillover effect in the U.S.-listed stocks.”
Stocks fell in the U.S. after the Shanghai Composite Index sank for the fourth time in five days as government measures to stabilize mainland markets failed to stop a retail investor selling spree. Even after the median price-to-earnings ratio in China dropped to 55 from 108 at the height of the rally in June, valuations are more than twice as high as those on the Standard & Poor’s 500 Index.
Bear Market
Chinese shares in Hong Kong followed their mainland peers into a bear market Tuesday. The Hang Seng China Enterprises Index slid 3.3 percent, extending losses to 20 percent from a May 26 peak.
China suspended initial public offerings and brokerages pledged to buy shares in weekend measures aimed at halting the mainland rout. So-called A-shares have posted their biggest three-week slump since 1992 on concern leveraged traders are liquidating bets after valuations exceeded levels seen during China’s stock-market bubble of 2007.
“People have less and less confidence in the government’s ability to stabilize the financial market,” Henry Guo, an analyst at Summit Research Partners, said by phone on Tuesday. “Names like Alibaba and JD.com are, to a certain extent, an indicator in the market, the selloff in these stocks shows the level of bearishness regarding the broader Chinese market.”
Alibaba slipped 2.3 percent to $78.40 after falling as much as 5 percent. JD.com declined 5.4 percent to $30.18. The Bloomberg US-China Equity Index fell 5.1 percent to 115.21, the steepest drop since September 2011.
The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the largest exchange-traded fund tracking mainland shares in the U.S., tumbled 9.5 percent to $37.43, the lowest since March.
Mainland Chinese shares were trading erratically on Thursday as regulators continued trying to calm the markets.
The Shanghai Composite index was up as much as 1.4% in mid-morning trade after falling 3.6% earlier.
A move to ban big investors from selling stocks may have soothed investor worries, analysts said.
Meanwhile, the state-run news agency Xinhua said police were investigating "vicious short-selling" on the country's stock market.
Xinhua said authorities would "crack down" on operations that had broken the laws and regulations related to trading.
By mid afternoon, the benchmark Shanghai index was up 1.3% at 3,552.8 points.
Relieving pressure
China's market regulator has introduced a string of new rules in the past week to try and relieve pressure on Chinese shares - which have lost more than 30% of their value since mid-June.
On Wednesday, the Shanghai Composite fell as much as 8.2%, leading some analysts to describe the session as 'Black Wednesday'.
In the latest efforts to try and stem the falling markets, Beijing has relaxed lending rules - making it easier for people to borrow money for investment - in the hope that they will buy more stocks. That follows a move late on Wednesday to ban investors holding stakes of more than 5% in companies from selling shares in the next six months.
Meanwhile, about 1,300 firms have halted trading in their stocks to prevent the value of their businesses falling further.
Elsewhere in Asia
The volatility in China was mirrored in Hong Kong, with the benchmark Hang Seng index reversing earlier losses - trading up 3.4% by mid-afternoon.
Japan's Nikkei 225 index was down 1.1% as investors worried about China's stock market and Greece's future in the eurozone.
"Tokyo markets have been affected by Chinese shares since yesterday," said SBI Securities' Hideyuki Suzuki, who is general manager of the firm's investment market research arm.
"But the Hang Seng Index and red chips which are now in positive territory are giving sense of relief," he said.
In Australia, the S&P/ASX 200 index was down 0.2% in afternoon trade. While South Korea's benchmark Kospi index slipped 0.2%.
