Hong Kong stocks rebound on fresh government support in China

China’s CSI300 index was up 1.6 percent and the Shanghai Composite Index had gained 0.6 percent. An estimated 80 percent of transactions on Chinese stock markets involve such investors, many of whom tend to make investment decisions based on price movements rather than on corporate performance and economic forecasts.

With wide-ranging new rules aimed to curb selling and much of the market in a trading halt, the benchmark Shanghai Composite index put on 5.79%, its largest one-day percentage increase since March 4, 2009.

“Liquidity is totally depleted”, Northeast Securities analyst Du Changchun told Reuters.

China stocks posted major gains on Thursday after regulators announced new measures created to stop the market’s slide.

However, any recovery is tempered by the fact that more than 40 percent of listed companies have suspended trading in an attempt to insulate themselves from the meltdown.

Heavyweight financial stocks rose.

The selling ban on major shareholders is meant to halt a selling frenzy that has wiped out over 30% of China’s equity market value over the past month. Hong Kong’s Hang Seng tumbled in the last hour of trading, a victim of the turmoil in mainland Chinese markets, to close with a loss of 5.9 percent.

Tokyo recovered from losses of more than three percent to end 0.60 percent higher.

But many economists believe that while President Xi Jinping’s plans to liberalize the Chinese Markets may have suffered a setback, the stock market rout is unlikely to affect the wider economy.

Another bright spot: China reported that inflation edged up 1.4 per cent in June. Margin trading allows investors to borrow stocks from brokerages to short shares, or bet that the prices will fall.

In the most draconian support measure so far, the China Securities Regulatory Commission (CSRC) said on its website late Wednesday that holders of more than 5 percent of a company’s stock would be barred from selling for the next six months.

The benchmark indexes Sensex and the Nifty plunged about 1.7 percent each on Wednesday, as concerns about an already slowing Chinese economy hit commodity prices and the Greek debt saga continued to take center stage.

Outside investors have only been able to access the Chinese stock market since October, and that required purchasing stock in Hong Kong.

Beijing, which had made handing a “decisive” role to the market a centrepiece of its economic reforms, has responded with a battery of support measures, including an interest rate cut, suspension of initial public offerings and enlisting brokerages to buy stocks, backed by cash from the central bank. (CSF) to help stabilise the market, reaffirming an earlier pledge. Some investors had mortgaged their homes to obtain money to buy stocks.

In an unusual move, China’s Finance Ministry asked state-owned financial institutions on Wednesday not to sell shares in listed firms amid abnormally volatile stock price fluctuations.

Relatively few USA investors have held Chinese stocks, so the damage here may be limited.

“The impact on the market remains muted and so more resources will probably be ramped up for the battle in the coming days”.