Chinese stocks rose after securities regulators relaxed margin-trading rules and cut equity-transaction fees in their latest attempts to prevent the country’s slide into a bear-market from deepening.
The Shanghai Composite Index climbed 0.4 percent to 4,068.68 at 9:32 a.m., led by brokerages. The China Securities Regulatory Commission announced late Wednesday that it will no longer require brokerages to force the sale of stock held by clients with insufficient collateral, and will allow “reasonable rollover” in margin trading. China’s two bourses will reduce the fees by 30 percent starting Aug. 1, the Shanghai Stock Exchange said after the market close.
“While the reduction in transaction fee is symbolically supportive, easing margin requirements is more significant potentially as it may reduce the level of margin calls and forced selling,” Tony Hann, who manages $350 million as head of emerging markets at Blackfriars Asset Management Ltd. in London, said by e-mail.
Regulators have made late-night announcements twice this week since the Shanghai Composite tumbled more than 20 percent from its June 12 peak as investors with borrowed funds scrambled to cut their positions and repay loans. The People’s Bank of China’s weekend interest-rate cut has failed to stem the rout, prompting the CSRC to urge investors to act rationally and not believe “shorting China rumors.”
Chinese stocks have been on a roller coaster over the last two weeks as investors are torn between hefty valuations and the government’s efforts to prop up the market. The Shanghai benchmark slid 5.2 percent Wednesday after jumping 5.5 percent on Tuesday, sending thirty-day volatility to the highest level since December 2008.
In U.S. trading Wednesday, Deutsche Bank AG’s exchange-traded fund tracking mainland shares pared losses to 3.9 percent after earlier falling as much as 5.5 percent. Trading volume was
1.9 times the daily average of the past three months.
The new margin-trading rules came into effect July 1. “Special circumstances” prompted the CSRC to implement them before a public comment period was scheduled to end on July 11, the regulator said on its microblog.
The CSRC also said it will let all brokerages sell short-term bonds, expanding a pilot program. There’s still room for margin trading and short-selling businesses to grow, it said.
A five-fold surge in leveraged wagers had helped propel the Shanghai index to a more than 150 percent gain in the 12 months through June 12. As the market turned, margin traders started unwinding their positions, precipitating the selloff. Margin debt on the Shanghai Stock Exchange has declined more than 9 percent since June 18 to 1.34 trillion yuan ($216.1 billion) on Tuesday.
The announcements won’t “be enough to stabilize the market, although given the importance of sentiment, anything that improves sentiment will be a short-term positive,” said Simon Male, head of Asian equities sales at Auerbach Grayson & Co. Ltd. in New York, said by e-mail. “Making it easier to obtain margin financing is only exacerbating the problem. Without fundamental support, the market will remain extremely volatile.”
Signals from policy makers are “very supportive news,” Jon Shaw, head of Asia Ex-Japan equity sales at Mizuho Securities USA Inc., said by phone. As the economic growth starts to pick up toward the end of third quarter, it “should help support the market,” he said.
(A previous version of this story corrected the index name in the second paragraph.)