End of China Share-Sale Ban to Have `Limited' Impact, CSRC Says

The end of China’s ban on share sales that tied up an estimated $185 billion of stocks will have a limited impact on the world’s second-biggest equity market, according to the China Securities Regulatory Commission. 

The rule, imposed during last year’s $5 trillion stock-market meltdown, barred major shareholders from selling their investments for six months and drew criticism at the time from foreign investors including Templeton Emerging Markets Group and UBS Wealth Management, who saw the intervention as a step too far. It expires on Jan. 8.

“Although the value of major holders’ free-floating stock is not small, not all of them need to reduce their holdings,” Deng Ge, the regulator’s spokesman, said in a statement. He dismissed as a “market rumor” that more than one trillion yuan of stocks will become available for sale.

The government has been removing market-support measures imposed during last year’s equity rout, when the Shanghai Composite sank 32 percent from a seven-year high in just four weeks. Initial public offerings resumed in December and signs of state buying faded as volatility waned. The introduction of a circuit-breaker system on Monday, designed to reduce the need for such extreme intervention, was immediately tested when the CSI 300 Index plunged 7 percent and triggered a trading halt for the remainder of the day.

Calming Markets

Since the ban started, volatility has fallen by more than half and the Shanghai Composite Index has rebounded 13 percent from its August low. All seven strategists and fund managers surveyed by Bloomberg say the stock market can withstand the impact of restriction’s lifting.

The regulator is studying how to improve share-sale rules by requiring more disclosure and controlling the pace of selling, Deng said, adding that new regulations will be announced soon.

The circuit breaker plays an important role in stabilizing the market and the government will work to improve the system, Deng said in the statement posted on the regulator’s website today.

“Based on overseas experience, the improvement of a circuit-breaker system is not one-off,” he said. “We need to gradually explore, gain experience and make adjustments.”

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