The dilligent analysts over at Bank of America Merrill Lynch have come up with a list of all the policy actions China has come up with to try and kickstart its roiling markets since stocks started unravelling in June.
There are lots of them (40 by our count) and they haven’t really worked.
Things like rate cuts, loosening rules on pension fund investing, and banning short selling look more like the result of fear than carefully considered policy.
There’s only one thing that seems to have a real effect: Direct buying by the Chinese state.
This was seen in effect in the Chinese markets on Thursday, which popped up more than 5% putting an end to a massive five-day losing streak. Bloomberg reported that the government bought stocks in large companies to stabilise the market ahead of a military parade next week.
But the BAML analysts say stocks will keep crashing if China keeps pressing every button on its financial policy console (emphasis ours):
We doubt that this represents the bottom of the market — it appears to us that the government has significantly reduced its direct purchase in the market in recent days and is now trying to replace the direct intervention with the softer, more market oriented, and indirect support. We doubt this will work beyond a few days. As a result, we recommend selling into any rebound.
The market is still down over a third from highs it reached in June.
China cut interest rates earlier in the week, which seems to work when markets are stable and gradually moving up, but not that effective in a crash:
And here’s a list of all the different policy buttons China has pressed on its financial crisis console since markets between the last two interest rate cuts.
The country has tried something nearly every day:
2. Asset Management Association of China (AMAC) requests investors and fund managers to stay rational and not to panic.
3. Brokers loosen margin financing requirements; the practice of lending to retail investors who use the money to trade shares.
4. State Council decides to suspend large public share offerings until Shanghai Composite Index of shares returns to 4,500 level.
5. Police investigate three media outlets for spreading rumours and the government vows to impose heavy penalties for manipulation. Government-run news sources Xinhua and People’s Daily both publish articles calling for investors’ confidence.
6. Margin financing: some brokers lower threshold and loosen policy again.
7. Crackdown on short selling and several brokers suspended the business.
8. China Financial Futures Exchange (CFFEX) restricts index future trading.
9. China Securities Finance Corporation (CSFC) to use funds contributed by various brokers to buy exchange traded funds. Social Securities Fund (SSF) vows not to reduce existing equity positions in its portfolio.
10. China Insurance Regulatory Commission (CIRC) allows insurers to invest more in blue-chip stocks.
11. PBOC vows to maintain market stability and avoid systematic financial risk. It will provide ample liquidity to CSFC via interbank lending, financial bond, pledged financing, and relending facilities.
12. CSFC grants credit to 21 brokers via pledged stocks to allow them buy more equities.
13. CSFC invests in mid cap stocks via mutal funds.
14. China Securities Regulatory Commission (CSRC) suspends reviews of share offerings.
15. China Banking Regulatory Commission (CBRC) allows banks to roll over matured loans pledged by stocks.
17. CSFC says it will purchase mutual fund products to stabilise liquidity.
18. CSRC probes trading system vendor Hundsun Tech for allowing illegal margin financing.
19. China tightens rules on futures trading.
20. CSDC to extend business hours for major shareholders to increase their own companies’ stock holdings.
21. CSRC demands brokers’ proprietary trading to maintain net purchase on daily basis and it will allow brokers equity investment to exceed risk limit during special period.
22. CSFC receives RMB 1.3 trillion from 17 commercial banks.
23. CSRC clarifies that government money will not be exiting the stock market.
24. CSRC denies rumour that state buying has stopped.
25. CSFC grants Rmb200 billion liquidity to five mutual funds.
26. CIRC urges insurers not to net sell equities in near future and demands daily report on equity holdings.
27. China Securities Depository and Clearing Co., Ltd (CSDC) cuts fees.
29. Shanghai Stock Exchange (SHEX) and Shenzhen Stock Exchange (SZEX) significantly raises commission to discourage program trading.
30. Policy banks announce RMB 1 trillion bonds to support infrastructure and construction in coming years.
33. CSRC vows to crack down on margin financing and illegal short selling.
34. PBOC adjusts currency fix, devaluing by 3%. Four out of five of theCSFC-invested mutual funds have started investing in A-share stock market.
35. CSFC publishes its exit plan: Part of its stock holding will be transferred to Huijin; CSFC says it won’t exit the stock market over the next few years.
36. Ministry of Finance (MOF) relaxes rules for state-owned venture capital funds.
37. CSRC investigates HOMS and Hithink RoyalFlush for illegal lending to finance retail stock purchases (margin financing).
38. CSRC suspends approval of 191 mutual funds and seeks to encourage more risk-tolerant investors.
39. State Council issues new pension fund investment guidelines, allowing stock investment at 30% of net assets.