Chinese Stock Market Rallies After Intervention

In Hong Kong, stocks extended a recovery into a second day as the Hang Seng Index rallied 2.3%, while a gauge of Chinese companies listed on the city’s stock exchange, known as H-shares, rose 4.4%.

The Standard & Poor’s 500 index increased 27 points, or 1.3 percent, to 2,074 and the Nasdaq composite gained 71 points, or 1.4 percent, at 4,909.

And late Wednesday, China’s securities regulator said that holders of more than 5% of a company’s stock would be barred from selling for the next six months, which may have contributed to Thursday’s rally.

On Wednesday, the Chinese securities regulator warned of a “panic sentiment” among investors as Beijing scrambled to halt the slide, buying up shares through state-owned companies and promising support for brokerages reeling from the sell-off.

The Shanghai Composite Index has dived about 30 percent from its June 12 peak.

An estimated 90 million small investors have taken the hit, although only 15 percent of Chinese households are believed to have been playing the market. Trading suspensions tend to slow market activity and defer risk until later.

The rising stocks encouraged companies to issue shares, and in the first half of the year, Shanghai led the world in initial public offerings. “This should also be the case on the way down; just because stocks are crashing, it doesn’t necessarily have a knock-on effect on China’s economy”.

“China’s stock market had become detached from the reality of China’s own economy, and appallingly overvalued”, Chovanec noted in a Twitter post. China’s two oil giants were among the biggest losers in Shanghai.

“The rise today may help ease some selling pressure when companies resume their shares from trading, but whether it’s sustainable will depend on what policies are coming next”.

“But it is concerning that the Chinese government doesn’t allow market forces to work, and that’s something China must change over time”.

An investor adjusts his glasses as he looks at a computer screen in front of an electronic board showing stock information at a brokerage house in Fuyang, Anhui province, China, July 9, 2015.

Hong Kong shares were sent into orbit at the start of April when Chinese authorities relaxed rules on southbound trading for mainland investors, using a stock link-up between the city’s exchange and Shanghai.

“Investor confidence is recovering”, Central China Securities Co (中原證券) strategist Zhang Gang (張剛) said. “I think China will remain an engine of the global economy”, he said after meeting President Xi Jinping in the Russian city of Ufa.

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