China Is Said to Call on Companies, Mutual Funds to Boost Stocks

(Bloomberg) -- China has urged controlling investors in listed companies to boost their holdings and some mutual funds to limit equity selling this week, according to people familiar with the matter, as officials seek to stem the impact of the stock selloff.

Over the weekend, the China Securities Regulatory Commission and other regulators sent informal directives to some major stockholders encouraging them to purchase more shares in the mainland-listed firms they invest in, according to the people, who asked not to be identified because the instructions were not made public. They called on some mutual funds to avoid being net sellers of equities as well.

Brokerages were also asked to provide trading summaries from last week to the regulator, and trading plans and previews for this week, the people said. The CSRC didn’t immediately respond to a fax seeking comment on Monday.

China Is Said to Call on Companies, Mutual Funds to Boost Stocks

As the global equity rout rocked markets last week, Chinese shares on the mainland plunged the most in two years, fueling speculation the government would step in to calm trading -- as it has during past selloffs. Initially triggered by the slump in U.S. shares, China’s retreat has been exacerbated by the looming Spring Festival holiday, which typically sees traders wanting to reduce holdings before the break. Beijing’s ongoing drive to reduce leverage in China has also added to downward pressure.

‘Beijing Put’

China has a track record of intervening to staunch losses in the mainland market, which -- unlike Hong Kong -- is dominated by individual investors. The practice has spurred concern over moral hazard, as it creates expectations during times of volatility that officials will come to the rescue.

While the informal directives were conveyed at the weekend, Bloomberg’s calculations show that more than 110 companies listed in Shanghai and Shenzhen issued statements related to major shareholders boosting their stakes between Feb. 9 and Feb. 12.

The Shanghai Stock Exchange said on Friday that it has issued warnings and limited intraday trading to prevent large equity sales that affected the market’s stability. Meanwhile, the China Securities Investment Services Center -- a body serving smaller investors that’s managed by the CSRC -- said major shareholders can boost investor confidence by purchasing stocks, Shanghai Securities News reported on Monday.

The Shanghai Composite Index rose 0.4 percent as of 1:39 p.m. local time on Monday, while the Shenzhen gauge added 2.4 percent.

©2018 Bloomberg L.P.