CHINA may let investors sell bonds that can be swapped for shares to deter equity sales and support the nation's stock market, the world's worst performer this year.
The China Securities Regulatory Commission is studying exchangeable bonds as part of a package of measures to restrict sales of shares in state-owned companies, said a Beijing-based official of the regulator who declined to be named before a proposal is made public.
The plan would enable state shareholders to raise funds without selling stocks on the market, limiting supply as trading restrictions end on more than US$1 trillion of government holdings. A cut in trading taxes and curbs on initial share sales failed to halt a 56-percent slump in the benchmark index this year, Bloomberg News said.
"This measure will help ease the pressure placed on the market by state-owned shares," said Victor Wang, a Hong Kong-based analyst at UBS AG. "Investor sentiment is quite low and the government has been trying to bolster market confidence by curbing huge share sales."
As much as 8.7 trillion yuan (US$1.3 trillion) of state holdings become tradeable through 2010, according to local data provider Wind, an overhang that's weighing on investors just as inflation and a slowing economy threaten to undermine earnings growth.
China's CSI 300 Index soared 7.9 percent on August 20, its biggest gain since April, on talk the government would announce plans to support a market that has lost US$2 trillion in value this year. The index rose 162 percent last year, the world's best performer. It fell 2.9 percent to 2,331.53 yesterday.