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HONG KONG — Chinese investors, who have watched their shares go down 30 percent or more over the past few weeks, got a reprieve on Thursday. Stocks rose as a series of market-propping government measures appeared to have their intended effect.
HONG KONG — Chinese investors got a reprieve on Thursday, as stocks rose after a series of market-propping government measures.
The main Shanghai index fell nearly 4 percent at the open of trading on Thursday but recovered to finish the day 5.8 percent higher, and shares in Shenzhen gained 3.8 percent.
On Thursday, the main Shanghai index finished the day 5.8 percent higher. Shares in Shenzhen gained 3.8 percent.
But even as shares rose, there were warnings that mainland markets have further to fall. Valuations of many small companies remain too high, and the government and state-owned companies are unlikely to buy up those shares, preferring to bid up the prices of more fairly priced larger companies, analysts say.
Even so, warnings persist that mainland markets have further to fall. Valuations of many small companies remain too high, putting pressure on those stocks. And big investors are likely to stick with larger companies, which are considered safer.
The only solution to the market rout is for the Chinese central bank to further loosen up the flow of money to restore momentum to economic growth, said Li-Gang Liu, chief economist for greater China at the Australia and New Zealand Banking Group. “Once investors see a rebound in China’s real economy, confidence may return,” he said.
The volatility presents a challenge for the leadership, which has moved aggressively to prop up stocks. The government, in part, wants to help restore momentum, lest the market slump weigh on confidence and economic growth.
In Hong Kong on Thursday, the Hang Seng Index was up 3.9 percent, after falling nearly 6 percent the day before. Markets in the region also turned positive, with the Nikkei 225 share average in Japan and the Kospi in South Korea both closing 0.6 percent higher.
“Once investors see a rebound in China’s real economy, confidence may return,” said Li-Gang Liu, chief economist for greater China at the Australia and New Zealand Banking Group.
Economists are divided over how big an impact the decline in the market will have on China’s economy, but many argue that it will hurt consumer sentiment and limit the amount the middle class is willing to spend on goods and property. That would weaken consumption at a time when China’s economic growth is already slowing.
While economists are divided over how big an impact the market malaise will have on China’s economy, many argue that it will hurt consumer sentiment and limit the amount the middle class is willing to spend on goods and property. That would weaken consumption at a time when China’s economic growth is already slowing.
According to an estimate by HSBC, about 15 percent of the assets of Chinese households are locked up in the stock market. Many are probably still holding shares whose values are quickly diminishing, unable to get rid of them because trading in those stocks has been suspended by the companies or the shares quickly drop after the market open to the daily 10 percent limit on losses.
According to an estimate by HSBC, about 15 percent of the assets of Chinese households are locked up in the stock market. Many are probably still holding shares whose values are quickly diminishing.
Shares of more than one-third of companies listed in Shanghai and Shenzhen are suspended from trading, in part from rules intended to limit price declines and put a check on panic selling.
Often, investors are unable to sell the stocks because trading has been suspended. Shares of more than one-third of the companies listed in Shanghai and Shenzhen have been halted, in part because of rules intended to limit price declines and put a check on panic selling.
“These kind of administrative measures are continuing, and over all they will only have a limited effect,” said Mr. Liu. “The rules can probably stop the market rout temporarily, but it won’t change the overall fundamentals.”
“These kinds of administrative measures are continuing, and over all they will only have a limited effect,” Mr. Liu said. “The rules can probably stop the market rout temporarily, but it won’t change the overall fundamentals.”
Beijing continued to introduce measures to stabilize the markets on Thursday, with the Public Security Ministry saying that it was investigating “malicious” short sellers in a bid to cut down on illegal market activity, according to Xinhua, the state-run news agency.
It has been a rocky period for Chinese investors. While stocks remain up over all for the year, they are off 30 percent or more in recent weeks.
On Wednesday, China’s security regulator banned investors who hold more than 5 percent of a company from selling that company’s shares. The regulator also indicated that it would relax trading laws for corporate insiders looking to buy back shares at a low price. Large state-owned companies have been ordered to purchase shares, and the government has halted new initial public offerings and had brokerage firms form a market stabilization fund.
Other markets, too, have been choppy. In Hong Kong on Thursday, the Hang Seng Index was up 3.9 percent after falling nearly 6 percent on Wednesday. Markets in the region also turned positive, with the Nikkei 225 share average in Japan and the Kospi in South Korea both closing 0.6 percent higher.
A potentially more worrying problem is that companies that took loans based on inflated share prices have invested that money back into the market. Still, Mr. Liu said that type of margin financing was only a small part, roughly 2 trillion renminbi, or $326 billion, of Chinese banks’ total balance sheets of 180 trillion renminbi, and therefore does not pose a major threat.
Beijing continued to introduce measures to stabilize the markets on Thursday, with the Public Security Ministry saying that it was investigating “malicious” short-sellers in a bid to cut down on illegal market activity, according to Xinhua, the state-run news agency.
On Wednesday, China’s security regulator banned investors who hold more than 5 percent of a company from selling that company’s shares. The regulator also indicated that it would relax trading laws for corporate insiders looking to buy back shares at a low price. Large state-owned companies have been ordered to buy shares, and the government has halted new initial public offerings of stock and has had brokerage firms form a market stabilization fund.
