The Chinese government halted any kind of initial public offerings in an effort to diminish its worst stock market plunge in the last 23 years, after numbers show that stock value has dropped by about 20 percent in the last couple of weeks. According to Securities Association of China, 21 of the country’s top brokerages will also invest the equivalent of $19.3 billion in an effort to stabilize the market and avoid a crash which could have dramatic consequences on the country’s economy.
About twenty-eight companies which recently went public have suspended initial public offerings on Saturday per order of China’s State Council. No information has been revealed on how long will the suspension be in place, but companies who already begun the IPO process will return funds to investors on Monday morning.
This comes as analysts are starting to fear that the stock market fall could generate a financial crisis, with the state making major market and trading related announcements every day last week. Over 90 million investors have been hit with a 29 percent decline in the Shanghai Composite Index – representing the measurement of all stocks which are traded at Shanghai’s Stock Exchange, the country’s largest stock market – which amounts to more than $3.2 trillion in investor wealth being erased.
Regulator measures, such as threatening to thoroughly investigate market manipulation, have yet to steep the decline. The Communist Party’s official newspaper, People’s Daily, has stated that immediate effect upon the market is unlikely and that such stabilization efforts require time to have a substantial impact. It also called out for investors to avoid panicking and judge the situation cold and patiently.
The 21 brokers who plan the investment have also pledged to not reduce the level of proprietary trading until the Shanghai Composite Index will be back at over 4,500; when trading hours closed on Friday, it measured 3,686.92.
However, financial experts have doubts on what real impact if any will the $19.3 billion, equivalent to 120 billion yuans, will have on a market with a turnover of nearly 2 trillion yuans per day.
The state might prove to be necessary ally in this situation, after last week major companies such as PetroChina or the Industrial & Commercial Bank of China had their stocks surge after investments which were reportedly handled with state funds. However, this did not stop the Shanghai Index from dropping 12 percent last week alone.
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