(Bloomberg) -- China’s top financial officials moved to shore up investor confidence in the country’s tumbling stock market, a rare coordinated show of verbal support that failed to immediately put a floor under the deepest equity sell-off since 2015.
The heads of the central bank, banking and insurance regulator and securities regulator all issued statements on Friday voicing their support for the market and promising measures to help ease financial pressures on companies, especially those with a high proportion of pledged shares. The officials stopped short of promising direct intervention.
Policy makers are grappling with a stock market that’s among the world’s worst performers amid an economic slowdown and an escalating trade war with the U.S. As share prices fall, the fate of hundreds of billions of dollars worth of shares pledged as loan collateral has become a pressing concern.
“The majority of the major shareholders’ holdings of listed companies are pledged,” said Central China Securities analyst Zhang Gang. “Once force liquidations occur, it may trigger a systemic financial crisis.”
People’s Bank of China Governor Yi Gang said in a statement on the central bank’s website that the recent stock market turmoil was caused by investor sentiment. The PBOC is studying measures to ease company’s financing difficulties and will also use monetary policy tool to support banks’ credit expansion.
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said in an interview posted on the regulator’s website that recent “abnormal fluctuations” in markets don’t reflect the country’s economic fundamentals and “stable financial system.” At the same time, Liu Shiyu, head of the China Securities Regulatory Commission, said his agency encouraged local government-backed funds to help ease pressures created by share-pledge risks.
“This kind of pep talk will have little short-term boost to the market,” said Liu Wu, an analyst at China Development Bank Securities. “The main problem is that the institutional investors keep selling, some actively as they want to gather ammunition for when the real bottom comes, and some from investor redemptions, so this will not cause a sustainable upturn.”
The Shanghai Composite Index pared early losses after Yi’s comments, though was still down 0.9 percent at 10:09 a.m. local time.
Here’s What Top Regulators Said on Friday
Guo also said that China will allow insurance companies to introduce products designed to ease liquidity risks caused by share pledging of listed companies. Liu revealed a number of measures in a statement on the CSRC’s website, including encouraging private equity funds to take part in company restructurings, enhancing share buyback mechanisms and exploring ways to help private companies to issue bonds.
“The comments are mostly addressing problems in the mid-to-long term,” said Nie Wen, an economist at Huabao Trust. “The regulators don’t want to encourage expectations that the national team will always save the day, hence giving rise to more margin trading. But from the circumstances now, that may be the only remedy.”
(Updates with comments from PBOC chief.)