The Chinese stock market has been dropping precipitously over the past few weeks and many of the companies on the index have decided to stop trading their shares altogether. Roughly a quarter of the companies on China’s two big exchanges have halted trading on their shares in order to “self preserve,” according to the state media. This amounts to more than 700 companies.
China’s stock market has been undergoing wild swings that have made investors nervous about their stock holdings. The value of the companies listed on the Shanghai Composite Index has decreased by more than 25 percent in the past three weeks. Companies listed on the smaller Shenzhen Composite Index have seen their shares fall even more, by roughly 30 percent. China’s stock markets have now lost $3.25 trillion, according to data released by the Bespoke Investment Group. Even with the decline, the Shanghai Composite is still up 14 percent this year.
China is scrambling to contain the damage as quickly as possible. In recent days, China has revealed a number of actions to be taken by the country to shore up its stock market. At the end of June, the Chinese central bank cut rates by a considerable amount. More recently, China’s securities regulator halted initial public offerings on the exchanges. Few foreign investors have much exposure to these stock markets because of the rules imposed by China on investing in stocks on the Chinese exchanges.
More than 20 of China’s top brokerage firms have released a public pledge to spend at least 120 billion yuan (about $19.3 billion) to buy back stocks and funds in an effort to slow the decline. The firms pledged to keep buying until the Shanghai Composite Index reaches 4,500 from its current level of just above 3,685. The goal of the move by the brokerages is to show smaller investors that investing in the stocks remains a good idea. The strategy is roughly the same as when companies purchase back stock that they feel is undervalued.