Newspaper article International New York Times

Share Sell-Off Spreads to Hong Kong from China ; Beijing's Effort to Prop Up Stock Prices Has Limited Impact as Rout Continues

Newspaper article International New York Times

Share Sell-Off Spreads to Hong Kong from China ; Beijing's Effort to Prop Up Stock Prices Has Limited Impact as Rout Continues

Article excerpt

Beijing's efforts are failing to confine the damage to mainland markets.

Heavy government-coordinated purchases pushed up the value of large companies' shares on mainland Chinese stock exchanges on Monday, interrupting at least temporarily a three-week downturn. But shares in smaller and midsize companies, which make up as much as two-thirds of the market by value, kept falling.

A widening gap between the relative strength of large companies' shares and the seemingly unending slide in the rest of the market threatens to widen social divisions in China. Millions of working- and middle-class families invested their life's savings and borrowed heavily over the past year to buy shares in smaller companies, simply because the shares kept rising and almost regardless of the companies' financial fundamentals.

By contrast, Chinese and foreign institutional investors heavily favored the larger companies. Many of the large companies are partially owned by the state, and their executives are senior Communist Party officials who wield considerable political influence. Some large companies also have close ties to some of the country's leading political families.

With the Chinese government supporting the prices of many companies' shares on mainland markets on Monday, particularly large companies, it was the turn of Hong Kong-listed shares to fall heavily.

The Hong Kong stock market had previously been nearly immune to the sell-off on the mainland. It has tighter restrictions on trading with borrowed money and stronger corporate governance rules. So it did not rise nearly as fast as mainland indexes over the past year and until Monday had not fallen very far either.

But the broad Hang Seng index of Hong Kong stocks slipped 3.2 percent on Monday, the Hang Seng index of 100 large mainland companies dropped 3.7 percent and the Growth Enterprise Market of mainly small mainland companies plummeted 14.4 percent.

Andy Wong, a Hong Kong stockbroker, noted that it was much easier for foreigners to sell shares in Hong Kong in response to developments in mainland China than to sell shares on the Shanghai or Shenzhen stock markets.

The falling Hong Kong market "is mainly the result of the overseas players' offloading Hong Kong stocks in a big way -- they appear angry at the Chinese government for coming out to interfere in the China stock markets," he said. "Since they have no room to play up north, the overseas players have switched to playing the Hong Kong stock market today."

At a brokerage house in Hong Kong, investors were divided on how much to worry about the day's setback.

Some, like Wong Chun, a 72-year-old investor who has been trading stocks since the 1980s, were clearly worried. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.