China has spent $144 billion (€132bn) to bolster the country’s fragile stock market since June, Goldman Sachs has estimated, but still has more than that amount in reserve to deploy if stocks resume their sharp descent.
The coalition of state financial institutions – the “national team” – has a war chest of roughly $322 billion at its disposal to support the market, the bank believes.
Concern that the national team is short of capital or is preparing to exit its investments has dominated investor sentiment in recent weeks. Shares fell 10 per cent last week after local media cited anonymous sources saying the national team was preparing its exit plan.
"The episode has underlined the difficulty the government faces in the task it has set itself of convincing investors that equity markets will deliver sustained gains," said Chang Liu at Capital Economics. "The market is driven more than ever by speculation about official intentions and any positive momentum will raise questions about whether support will be withdrawn."
The Shanghai Composite index closed at 3,662 yesterday, 8.6 per cent above the low-point touched at the depths of the selldown on July 9th, despite the official support. It is 28.9 per cent below the seven-year high of 5,178 reached on June 12th.
The government has not disclosed how much money it made available to China Securities Finance Corp, the state-owned margin lending agency that is the main conduit for injecting rescue funds into the market, nor how much has been spent.
Drawing on local reports, Goldman estimates CSF has about Rmb2 trillion ($322bn). This includes Rmb1.3 trillion in loans from commercial banks, Rmb80 billion in bonds in July, and equity capital of Rmb100 billion. The People’s Bank of China said it provided liquidity to CSF.
“We believe the market concern over the Chinese government’s potential exit from its market support is probably overdone,” Goldman analysts wrote. More bearish analysts note the government appears to have little to show for money spent so far. – (Financial Times )
