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Chinese Stocks Rise, but Fears Persist Chinese Stocks Rise, but Fears Persist
(about 3 hours later)
HONG KONG — Chinese investors got a reprieve on Thursday, as stocks rose after a series of market-propping government measures. HONG KONG — Volatility continues to reign in the Chinese stock market, as investors and the government scramble to deal with wild ups and downs.
On Thursday, the main Shanghai index finished the day 5.8 percent higher. Shares in Shenzhen gained 3.8 percent. After a two-day sell-off, Chinese investors got a reprieve on Thursday, aided by a series of market-propping measures by Beijing.
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 main Shanghai index finished the day 5.8 percent higher, while shares in Shenzhen gained 3.8 percent.
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. The swings are likely to persist, with many analysts warning that mainland markets have further to fall.
“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. 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.
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. This volatility presents a challenge for the leadership, which has moved aggressively to prop up stocks. The central bank has made more cash available for stock purchases. Brokerage firms, at the government’s prodding, are pouring billions of dollars into the markets. Initial public offerings have been halted.
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. The government wants, in part, to help restore momentum, lest the market slump weigh on confidence and growth. While economists are divided over how big an impact the market malaise will have on China’s economy, many say 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 while China’s economic growth is already slowing.
The ultimate economic impact will depend on whether the slump is short-lived or not. “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.
Complicating matters, tens of millions of ordinary investors piled into stocks over the past year, with many using borrowed money to do so. About 15 percent of the assets of Chinese households are locked up in the stock market, according to an estimate by HSBC. And many are holding shares whose values are quickly diminishing.
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.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 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.”“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.”
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. In the past few years, the stock market rode to new highs, with the major indexes doubling or even tripling. Shares, though, started to defy fundamentals, with economic and corporate growth lagging. Worries mounted that the boom was turning into a bubble. Now, Chinese investors are entering a rocky period. While stocks remain up over all for the year, they have been off 30 percent or more in recent weeks.
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. Other markets, too, have been choppy. In Hong Kong, the Hang Seng index was up 3.9 percent on Thursday 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.
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. 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 indicated that it would relax trading laws for corporate insiders looking to buy back shares at a low price.
On Wednesday, China’s security regulator 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.