China Steps Up Efforts to Stabilize Markets as Confidence Slumps

(Bloomberg) — Chinese authorities have stepped up efforts in recent days to bolster financial markets in a sign that Beijing is growing uncomfortable with the pace of declines in stocks and the yuan.

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Mainland exchanges this week asked some investment funds to avoid net selling equities. Officials requested state-owned banks to escalate intervention to support the yuan, while also encouraging companies listed on the tech-heavy Star Board to buy back shares. The securities regulator said late Friday it will slash handling fee in stock transactions and study extending trading hours for equities and bonds.

The moves complemented the People’s Bank of China’s surprise interest rate cut this week, which was the biggest reduction since 2020, and its most forceful yuan fixing guidance ever on Friday.

So far, the measures have yet to buoy the markets. A gauge of Hong Kong-listed Chinese stocks was on course for a third-straight week of losses. The Hang Seng Index is down more than 8% this year, ranking among the biggest global losers. The gauge entered into a bear market on Friday. While the yuan eked out marginal gains against the dollar Friday morning, it has fallen more than 5% this year.

Rattled by dismal economic data, deflation fears, a weakening housing market and a crisis in the shadow lending sector, the mainland financial markets are facing the possibility of a vicious cycle of capital outflows. Foreign investors were net sellers of Chinese stocks Friday, capping a record streak of outflows.

“Debt strains from property developers and local-government financing vehicles are spreading across China’s economy,” Gavekal Research analyst Xiaoxi Zhang wrote in a note dated Aug. 16.

Other investors stress a more positive longer-term view. Focusing on China’s problems may be backward-looking at this point as the time may be ripe to look for stock opportunities given declines in valuations, Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd., said in a Bloomberg Television interview.

Among other things, Crabb is expecting further stimulus to bolster consumption. Other items to watch in Beijing’s toolkit include a cut in the stamp duty on stock trading, lifting of foreign investment caps and relaxation of equity trading rules.

The announcements on cutting stock handing fees and consideration to extend trading hours “may help smooth out some of the financial market volatility and lower transactional costs, but do not address the core issues of lack of confidence and economic momentum,” said Marvin Chen, a strategist at Bloomberg Intelligence.

–With assistance from Paul Allen, Shery Ahn and John Cheng.

(Updates to add Hang Seng Index’s bear market entry, CSRC’s moves and more comments.)

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