Vol. 5 Num 263 Tue. February 22, 2005  

China to set up $6b stock stabilising fund

China will create a $6 billion stabilisation fund by June in its boldest move so far this year to support moribund markets, but a lack of detail could keep investors sidelined, state media and analysts said yesterday.

Analysts said regulators, scrambling for ways to shore up China's markets, Asia's worst-performing in 2004, will model their fund on Taiwan's National Stabilisation Fund, using government money for the first time to intervene in times of volatility.

They reckoned Beijing could amass about 50 billion yuan ($6 billion) by the end of the first half of this year.

The benchmark Shanghai composite index had gained 1.6 percent by the lunch break as investors cheered the move.

"Investors want more details so gains were capped today," Lu Wei, a trader at East Asia Securities, said yesterday. "But once the fund is established, it will be seriously positive news for the market."

Beijing has taken steps to boost slumping markets after the index fell 15 percent in 2004, hit by economic cooling steps, corporate scandals and a raft of new share issues.

But with $1.5 trillion in savings and few investment choices, Chinese have piled into stocks, pushing valuations to 25 times earnings on average and making stocks nearly twice as expensive as in Hong Kong. Only a third of the market is traded.