China stocks fluctuate as regulator seeks to reassure investors

China's stocks swung between gains and losses as regulators moved to reassure investors after Monday's plunge put the nation's new market circuit breakers to the test on their first day.

The central bank poured cash into the money market system and the securities regulator suggested it might restrict share sales by major shareholders. The unexpected 130 billion yuan ($US19.94 billion) injection by the central bank during open market operations - the largest such injection since September - appeared timed to reassure Chinese retail investors, who are always sensitive to liquidity signals, that the bank would support the market with cash.

"The reality is that we still need some of that state support or intervention," said Tai Hui, Asian market strategist at ...
"The reality is that we still need some of that state support or intervention," said Tai Hui, Asian market strategist at JPMorgan Asset Management. Photo: AP

China's securities regulator said it was studying rules to regulate share sales by major shareholders and senior executives in listed companies. This would indirectly address concerns that the end of a six-month lockup on share sales by major institutional investors - scheduled to free up an estimated 1.2 trillion yuan of shares for sale next Monday - would result in a massive institutional evacuation from stocks.

The China Securities Regulatory Commission also defended the functioning of the new "circuit breaker" policy that caused Chinese stock markets to suspend trade on Monday after markets fell 7 percent, triggering the mechanism on the very first day it came into effect.

While some analysts criticised the design of the circuit breaker, saying it inadvertently encouraged bearish sentiment, the CSRC said the mechanism had helped calm markets and protect investors - although it said the mechanism needed to be further improved.

The measures appeared to have had some effect by mid-morning. While major indexes opened more than 2.5 per cent lower, they quickly recovered into positive territory.


The CSI 300 Index was little changed at 10.05am local time after rising as much as 1.4 per cent and dropping 2.7 per cent.

"The CSRC comment serves as 'window guidance' and will go some way to alleviating the market's selling pressure," said Wu Kan, a fund manager at JK Life Insurance Co in Shanghai, who's holding off buying shares for now.

"However, investors should still seek opportunities to sell if they have large holdings. Monday's plunge damaged investor confidence and the market isn't likely to recover soon."

The world's second-largest stock market began the year on a down note after data showed manufacturing contracted for a fifth straight month.

Chinese policy makers, who went to unprecedented lengths to prop up stock prices during a summer rout, are trying to prevent financial-market volatility from weighing on an already-slowing economy.

The Shanghai Composite Index slid 0.3 per cent, while the Hang Seng China Enterprises Index added 0.1 per cent after falling the most since August on Monday.

Reuters and Bloomberg