Chinese stocks are tanking again, defying efforts to stop the losses

You can never tell where the Shanghai Composite will finish in a day’s trade, but it appears headed for yet another day of heavy losses despite increasingly frantic efforts by authorities to support share prices.

At the lunch break the benchmark index had fallen by a further 3.19%, wiping out all of the 2.42% gain seen on Monday. Having hit a multi-year peak of 5,178 on June 12, the index has now fallen 30%.

Perhaps even more remarkable than the size of the recent decline is the fact the index cannot rally at present.

Chinese policymakers have thrown absolutely everything bar the kitchen sink at stocks in an attempt to support the market. However, despite their best efforts, there is just no stopping the increasingly bearish price action.

Here’s a list of the measures announced over the past two weeks. If we miss any it’s not through a lack of effort, there have simply been that many.

  • China’s central bank, the PBOC, cut interest rates by 0.25% and reduced the required level of cash reserves required to be held by some Chinese banks by an additional 0.5%.
  • 21 top Chinese brokerage firms pledged to spend no less than 120 billion yuan on ETFs ands blue-chip stocks. They also stated they will refuse to sell stocks until the benchmark Shanghai Composite index traded above the 4,500 level.
  • Having previously tightened lending restrictions, margin lending requirements have been loosened by some brokers.
  • Large state-backed Chinese insurers bought billions of yuan worth of ETFs and large-cap stocks on Monday.
  • Some account holders have been prevented from short-selling futures.
  • China’s stock market regulator announce an investigation into market manipulation, something that may have contributed to the recent decline in stocks, in its opinion.
  • Central Huijin Investment Company, the investment arm of the central government, also announced it had purchased ETFs and would continue to do so in order to bolster the market.
  • 28 IPO listings scheduled for upcoming weeks, something that has drained market liquidity as investors sold existing stock to finance new share purchases, have been postponed.
  • China’s financial futures exchange said it would limit investors’ daily purchases of CSI 500 index futures to 1,200 lots for rise and fall.

It’s an amazing array of measures that have been announced in just two weeks, and looks increasingly desperate to those watching the ever-larger daily gyrations. However, the attempts to stabilise the market, in other words move higher, the benchmark Shanghai Composite has slumped close to 20%.

One has to wonder what will happen next?

Some have joked that authorities will simply ban investors from selling stocks. while that may be a little far-fetched, particularly in a “two-way” market, it’s clear that while stocks remain under pressure, further attempts to resuscitate the nation’s ailing bull market are likely to arrive in the days ahead.

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