Relief as mainland stocks end losing run
Ren Wei in Shanghai
Buying driven by talk of move on state shares
Mainland shares rebounded yesterday to record their biggest single-day gain since January 15 as investors anticipated new rules, issued after the market close, aimed at preventing state shares from flooding the market.
The Shanghai Composite Index, which had declined more than 7 per cent in the previous two days and fell as much as 1.45 per cent in yesterday's morning trade, recovered to close up 4.58 per cent or 165.48 points at 3,781.35.
The Shenzhen Composite Index jumped 4.96 per cent or 50.37 points to 1,066.22, also after an early drop. Combined turnover in the two markets yesterday swelled 30 per cent from a day earlier to 14.4 billion yuan.
For the week, each of the indices declined 1 per cent, the third consecutive weekly decline as investors were concerned about falling liquidity with the announcement of US$200 billion in special government bonds and an expanded qualified domestic institutional investor scheme.
'We do not expect a strong rebound this time and we believe a prolonged consolidation period is more likely due to the tightening-biased monetary policy stance,' Steven Sun, a strategist at HSBC Holdings, said in a research note. 'The widening of the QDII investment scheme to brokers and fund managers challenges the A-share market which is trading at significant premium to the offshore H shares,' Jerry Lou, an analyst with Morgan Stanley, wrote in a research note.
Under the new rules, the brokerages and fund management firms joined banks in being allowed to apply for a foreign exchange quota to invest clients' money on the overseas markets, another move that will likely sap the domestic market's liquidity.
'Seemingly the stocks were driven up [yesterday] on speculation of government supporting policies but there was a batch of stocks that were really worth buying,' said Sun Chao, an analyst with China Citic Securities. Even so, 'there remains a big difference between the longs and shorts. It's early to predict who will show an upper hand next week'.
A commentary in the China Securities Journal yesterday said the State-owned Assets Supervision and Administration Commission was about to publish rules to limit the sale of state-owned shares.
The state asset regulator posted the rules online after the market closed.
Beijing in the past two years forced listed companies to reach agreement with minor shareholders on compensation packages in exchange for making locked-up state shares tradable.
Under the rules jointly published by the state asset watchdog and the China Securities Regulatory Commission, key shareowners are barred from selling state-owned stocks exceeding 3 per cent of a company's equity of one billion shares or more unless they receive approval from the regulators.
Companies whose share volumes are less than one billion are allowed to sell no more than 5 per cent of the total without approval.
On seeing the article, 'investors had heightened expectations for more supporting policies', said Ning Dongli, an analyst at Orient Securities. 'They probably will have more reasons to cheer because more good news is coming.'
Yesterday's buying was also buoyed by a National Bureau of Statistics report showing China's business confidence index hit a record high of 143.1 in the second quarter, up from 142 in the first quarter.
'[The report] also beefed up confidence listed companies would deliver solid earnings this year,' Ms Ning said.
'The rally appears to have strength.'