China mulls $19bn fund to help its falling stock market
China’s security companies are planning to establish a new fund worth USD 19 billion in order to stabilize the country's stock market, which is currently experiencing a free fall.
According to an AP report, in addition to the fund, more than two dozen companies in China are deferring initial public offerings (IPOs) as a further step to help the falling market.
The 28 companies, which had been allowed by the country’s securities watchdog to go on with their IPOs in Shanghai and Shenzhen, announced that they would postpone the measure as a result of recent market fluctuations, China’s official Xinhua news agency announced late Saturday.
The plan for establishing the fund was announced by 21 Chinese securities companies, which released a joint statement on Saturday, pledging to invest about 120 billion yuan (USD 19.33 billion) in China’s stocks. The companies added that they would continue to invest in the market as long the Shanghai Composite Index, the Chinese equivalent of the Standard & Poor's 500 Index, remains below 4,500 after it closed at 3,686 on Friday.
The statement was posted on the website of the Securities Association of China.
The Chinese stock market has been experiencing a free fall for three weeks, losing 28 percent of its value since June 12, which has been translated into several trillion dollars lost in market value in a matter of weeks.
While being the world's second-largest economy, the Chinese stock market is largely isolated and foreign investors can indirectly participate in the market only through funds or specialized brokerage services.
The country’s stock market is dominated by individual investors, and is nothing like its counterparts in the US and Europe where institutional investors play the most important role.
China’s state-owned media have been for months encouraging ordinary Chinese people to buy more shares. Many individual investors in China have been borrowing heavily to buy stocks, while the rising stock prices have encouraged companies to raise money by issuing shares.
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