China coaxes listed firms to buy back shares to stabilise market

Hong Kong — China is encouraging long-term investors to buy more equities and major shareholders of listed firms to increase their holdings when stocks slump, in a bid to stabilise a stock market rocked by a worsening Covid-19 outbreak.

The government will also facilitate corporate financing in Covid-19-hit areas and urge state shareholders of listed firms to actively buy undervalued stocks, the country’s securities watchdog said in a statement on its website late on Monday.

China’s benchmark CSI300 index fell 3.1% on Monday, the biggest drop in a month, as a lockdown in Shanghai and other parts of the country threatens economic growth.

The market dipped further on Tuesday morning to a near four-week low, bringing this year's loss to 17%, as investors appeared unmoved by the authorities' gesture.

Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management, said mobilising capital, especially public money, into Chinese stocks now doesn't make sense.

“There remain lots of structural bubbles and risks in this market, which also faces huge external uncertainty,” he said, citing capital outflow risk, fallout from the Ukraine crisis, and rising geopolitical tensions.

The China Securities Regulatory Commission (CSRC) said in Monday’s statement that authorities will take steps to stabilise expectations of listed companies and investors.

China will encourage social security funds, pension funds, insurers, trust firms and wealth management firms to allocate more money to equity assets, and invest more in quality listed companies, the CSRC added.

The government will also improve the financing mechanism for private companies, and support corporate fundraising, acquisitions and restructurings in areas badly hit by Covid-19.

Boost confidence

To boost investor confidence, CSRC said it will encourage listed firms to buy back their shares to stabilise prices. Major shareholders and senior executives are also encouraged to actively buy shares when prices fall sharply.

Meanwhile, state shareholders should actively buy undervalued stocks, and support share buyback and cash dividend plans by listed firms, according to the statement, which was jointly published by the CSRC, China's state assets supervisor, and the All-China Federation of Industry and Commerce.

China is also stepping up efforts to woo foreign investors, amid signs of capital outflows.

The Shanghai Stock Exchange said late on Monday that it had held a virtual roadshow with nearly 200 representatives from global investors including sovereign wealth funds and pension funds, to promote index investments tracking China.

The promotion came after Institute of International Finance (IIF) data showed outflows of $6.3bn from China equities in March, and $11.2bn out of China bonds.

“Investor sentiment towards Chinese equities remains negative amid elevated regulatory risk and concerns that the asset class provides limited hedge against stagflation risk,” Manulife Investment Management said in a note on Tuesday.

The money manager expects slower growth in China, citing challenges including the rising economic costs of zero-Covid-19 policies, which damp consumption.

Also citing the “substantial” costs of China’s strategy to fight Covid-19, Nomura said late on Monday China is facing a rising risk of recession.

Reuters