UPDATE: China market chaos intensifies

More than half of companies listed on mainland stock exchanges have halted trading, with the market bracing for further suspensions.

“No trading, no pain” is one phrase making the rounds in China to describe the sentiment toward China’s volatile stock markets, as more than half listed firms filed applications to halt trading of their shares, an unprecedented move to avoid plummeting stock prices.

The phrase went viral on Sina Weibo, China’s version of Twitter, and re-tweeted more than 2m times on Tuesday when over 700 companies suspended trading on the Shanghai and Shenzhen exchanges. Many are small and mid-cap firms.

About 1,500 companies have filed for suspensions, accounting for more than half of all stocks listed in China. The benchmark Shanghai composite Index dropped as much as 8% at the opening of trade.

In the filings, most companies cited "significant issues" as the reason for their requested suspensions without further elaboration.

Unsurprisingly, the gesture was endorsed by many retail investors. They posted the phrase “No trading, no pain” on Weibo to thank the companies for “limiting their losses” amid the market plunge.

“Both of the stocks I bought are suspended [from trading]. I can finally sleep well today,” wrote one user using the internet handle “guduxiaohei”.

However, some market insiders see the exodus as an example of companies trying to shield themselves from losses associated with normal, albeit dramatic, market fluctuations.

The "stop-loss" outcome for retail investors could be viewed as a beneficial side-effect.

“[These] companies don’t have other choices. If they don’t halt the trading, their shares will just keep falling and reach the very bottom,” said Luo Wenbo, an equity analyst at Qilu Securities, a domestic broker.

That's the risk investors take knowingly in developed capital markets.

Michael Shu, an investment banker based in Shenzhen, said the suspension would be the “best and safest” way for non-heavyweight stocks, as they don’t have the capacity to counter the market rout.  

“It’s like when the flood is coming after you. If you are not a good swimmer, you’d better run back home and close the door to protect yourself,” he added.

According to China’s regulatory rules, companies can generally suspend the shares from trading up to three months.

The unprecedented exodus from the market came after the country’s equity markets plunged by nearly 30% in three weeks since hitting year-highs in mid-June, the steepest three-week decline in over two decades.

Meanwhile, about $3 trillion was wiped off the total value of the market, roughly 30% of China’s GDP last year.

Since the market dive, Beijing has introduced a series of measures to stem the huge sell-off, including the central bank’s interest rate and reserve ratio requirement cuts and the securities regulators’ easing of rules on margin financing.

More recently, 21 of China’s biggest securities firms pledged to deploy Rmb120 billion to invest in shares of big SOEs.

IPOs, officially suspended on Sunday, have become the latest victim in Beijing’s “rescue” operation.

“This series of actions demonstrated strong political willingness from Beijing to maintain capital market stability,” Dong Tao, regional economist at Credit Suisse, wrote in a research note on Monday. “The strong policy initiatives, if implemented effectively, should help support capital market stability.”

However, the efforts have thus far failed to prop up the market.  

On Tuesday, the benchmark Shanghai Composite Index retreated 1.3% after reaching a modest gain of 2.4% one day before, while the Shenzhen Component Index, which tracks smaller and privately owned firms, closed the day down 5.8%.

In addition, the Shenzhen-based ChiNext board, the Nasdaq-style stock exchange in China, dropped 5.7%.

Among all traded stocks on the three bourses, only 63 had advanced while 1,251 saw steep declines, according to Wind data.

The top winners were big state-owned banks and enterprises, with Minsheng Bank and Citic Bank taking the lead, both jumping by 10% - the maximum daily limit.

“No eggs can remain unbroken when the nest is totally ruined,” said Peter Li, a Beijing-based investment banker at China Construction Bank International.

“Unless they are state-owned eggs,” he quipped.

This article has been updated to reflect the increasing number of listed firms that have stopped trading shares. An earlier version stated that roughly one third of companies halted trade.

¬ Haymarket Media Limited. All rights reserved.
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