Shenzhen exchange says Chinese listed companies’ pledged-share risk under control
- Pledged shares accounted for 5 per cent of total market cap on China’s two exchanges by the end of 2018
- ‘Overall risk is controllable,’ Shenzhen exchange says
The risks to China stock markets from pledged shares – which led to jaw-dropping collapses in share prices on the Shanghai and Shenzhen exchanges last year – are under control, authorities said.
Action by the central bank and local governments last year to pump liquidity into troubled companies helped right the markets at key times. But it also reduced the amount of pledged loans in the system, by giving private companies access to needed funds through bank loans, for example, figures released over the weekend by the Shenzhen Stock Exchange indicated.
“The risk of pledged shares was gradually exposed because of multi-factors such as the macro environment and market volatility,” the Shenzhen exchange said in a report on its website. “The overall risk is controllable and has a limited impact on listed companies as a whole.”
The exchange went back to find out how vulnerable China’s markets have been to pledged shares after a rout in which some stocks dropped by more than 50 per cent last year.
Pledging shares with brokerages for loans is a common way for Chinese publicly traded companies, particularly private and small ones, to get funding because they historically have had difficulty accessing bank lending. But when margin trading or other loans are called, it can trigger forced selling of shares that had been pledged as collateral and spark an avalanche of panic selling.
But the exchange indicated that the size of pledged loans has shrunk, reducing such risk.
