China Gov is urged to intervene into stock market to tackle the irrational performances

Former Chairman of China Securities Regulatory Commission Zhou Zhengqing openly suggested thrice in ten days that the country should launch a buffer fund to correct what he called the irrational fluctuation of the domestic stock market.

The buffer fund, also known as the intervention fund, is a kind of state-raised fund used to rescue the stock market from irrational performances, such as a nosedive in share prices or overheating.

Investors react as they sit in front of an electronic board showing stock information at a brokerage house in the financial district of Beijing November 10, 2008. China's stock market surged to a two-week high and turnover expanded on Monday after the government announced a major stimulus package for the economy. The world's fourth-largest economy launched a huge stimulus plan worth 4 trillion yuan ($586 billion) focused largely on infrastructure and social projects, that they hope will kick off what could be a round of big spending or interest rate cuts by leading economies to stave off a recession in many countries. REUTERS/David Gray (CHINA)

"The current market slump falls out of line with the country's economic development, which remains on a healthy track. It's time the government take effective measures to secure the investors' confidence as well as stabilize the market," said Zhou in a latest speech concerning the buffer fund on Sunday.

Zhou, also vice director of the Financial and Economic Committee under the 10th National People's Congress, said governmental intervention is necessary as many problems could not be solved by financial markets alone.

A report submitted at the end of October by the Research Center of International Finance with Chinese Academy of Social Sciences contained even more specific suggestion concerning the buffer fund issue, according to Monday's China Securities Journal.

The government should establish a buffer fund worth 600 billion yuan to 800 billion yuan to purchase 50 heavyweight stocks on the market before Chinese shares fall to 1,500 points, the report said.

But this kind of policies turned out to be not strong enough to stabilize the market, according to Cao Fengqi, head of Research Center for Finance and Securities of Peking University. To launch a buffer fund is the only effective way to rally market confidence.


ETFs/Stocks :

iShares FTSE/Xinhua China 25 Index ETF         FXI  $25.60  + 2.91 ( 12.83%)
UltraShort FTSE/Xinhua China 25 Proshares ETF  FXP  $76.32  -25.67 (-25.17%)

Related Posts :

China’s Stimulus Plan could drive pulling back in metal and basic material ETFs

Sources :

XinHua: China official, experts urge gov't to launch buffer fund for stock market, November 10, 2008 19:31

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.