China financial regulators support stocks with policy outlook, cash

SHANGHAI: Chinese regulators leapt to support stock markets early Tuesday, the day after a major crash, with the central bank pouring cash into the money market system and the securities regulator suggesting it might restrict share sales by major shareholders.

The unexpected 130 billion yuan ($19.94 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.

China’s securities regulator said it is 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 6-month lockup on share sales by major institutional investors – scheduled to free up an estimated 1.2 trillion yuan worth 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 criticized 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 needs to be further improved.

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

Nine new financial service standards: China published nine new financial service standards that will come into effect on June 1, the country’s central bank said in an online statement on Tuesday.

The new standards set guidelines for financial services and protect financial consumers, the People’s Bank of China said on its website.

The new financial service standards will support “supply-side reform”, Tian Shihong, the head of the Standardization Administration of China said in the statement.

Yuan support: China’s onshore yuan firmed against the dollar on Tuesday after suspected interventions from the central bank, three traders told Reuters.

“It’s quite obvious that the central bank has intervened in the market via big Chinese banks in the morning and trading was very active,” said a trader at a Chinese bank in Shanghai. The yuan closed at 6.5338 per dollar on Monday, but strengthened immediately after the opening on Tuesday and traded at 6.5197 by mid-morning.

China’s forex and stock markets had plunged sharply on Monday in response to weak economic data, sparking a global sell-off of riskier assets.

In the offshore yuan market, where the central bank usually takes a hands-off attitude, the yuan remains weak and hit 6.6446 in early trade, the lowest level in more than four years.

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