A fifth of China’s stock market remains frozen as the number of companies resuming trading slows to a trickle.
A total of 576 companies were suspended on mainland exchanges as of the midday break on Monday, equivalent to 20 percent of total listings, and down from 635 at the close on Friday. The halted firms are valued at an average 243 times reported earnings, compared with 164 times for all companies traded in Shanghai and Shenzhen.
The ongoing suspensions are raising doubts about the sustainability of a rebound in Chinese stocks. The Shanghai Composite Index has climbed about 14 percent from its July 8 low, following a 32 percent plunge that helped erase almost $4 trillion of value. The number of companies with trading halts exceeded 1,400, or around 50 percent of listings, during the height of the rout as the government took increasingly extreme measures to shore up equities.
“When half the market becomes illiquid, that was a sign that China had regressed, they’re not willing to accept the ups and downs of a capital market,” Roshan Padamadan, the founder and manager of Luminance Global Fund, said in an interview on Bloomberg Television from Singapore. Researching companies becomes “pointless” when the government allows them to halt trading without reason, he said.
The suspended companies have a combined value of 4 trillion yuan ($644 billion), equivalent to about 9 percent of China’s total market capitalization. The majority of halts were by shares listed on the Shenzhen Composite Index, the benchmark gauge for the smaller of China’s two exchanges.
The Shanghai Composite rose 0.9 percent at the close on Monday, while the Shenzhen gauge added 1.8 percent.
Chinese policy makers have gone to unprecedented lengths to put a floor under the market as they seek to bolster investor confidence and prevent soured loans backed by equities from damaging the financial system. Over the past few weeks, they’ve banned large shareholders from selling stakes and ordered state-run institutions to buy shares.
The government has achieved its goal of ending panic and stabilizing the market by taking timely measures, the Securities Daily reported Monday, citing Vice Finance Minister Zhu Guangyao. It is appropriate for China to take stabilizing measures when market volatility rises to a high level, Zhu was cited as saying.
Money managers including Standard Life Investments and Aberdeen Asset Management have warned that government meddling threatens to further delay the entry of mainland stocks into MSCI Inc.’s global benchmark indexes.
“China was moving from an emerging market to a developed market,” Padamadan said. “Now it’s probably regressed and it’s probably on the verge of becoming a frontier market.”