Update | Shanghai market recovers but ends worst week in 5 years

Bullish trading on Friday afternoon was not enough to save Shanghai’s stock market from its worst weekly performance in almost five years as weak trade data underscored the challenges facing the world’s second-largest economy. The Shanghai Composite index closed up 2.28 per cent, or 93.70 points, at 4,205.92, halting three straight days of losses. The index however, was down 5.31 per cent for the week, its biggest weekly drop since July 2010. In Hong Kong, the Hang Seng index finished up 1.05 per cent, 287.37 points, at 27,577.34. Turnover in both markets was well below recent averages. “Investors remained cautious ahead of US non-farm payroll data…and the market is a bit overbought since the rally in April,” said Louis Wong of Philip Capital. The authorities will shortly announce new measures to rein in margin lending – the trading of stocks on borrowed money – Wong said, with mainland-based brokers on Friday told to hand over lending arrangement data to regulators. An estimated 4.4 trillion yuan to 5.9 trillion yuan of borrowed money, equivalent to between 6 and 9 per cent of the total capitalisation, is invested in mainland stocks, says Credit Suisse. Information technology (IT) stocks led the rebound after Beijing vowed to cut red tape and encourage tech start-ups and e-commerce. There were also rumours that the State Council approved a fourth-quarter launch of the two-way stock trading scheme between Hong Kong and Shenzhen exchanges. With Shenzhen’s market dominated by tech firms, the city’s composite index shot up 4.17 per cent to 2272.16. The tech sector was up 5.83 per cent in Shanghai, and in Hong Kong. IT giant Tencent rose 0.65 per cent to HK$154. The city’s H-Shares Index rose 2.04 per cent, or 281.19 points, to 14,049.66. China Customs on Friday announced the nation’s exports fell 6.4 per cent year on year in April to US$176.3 billion, while imports plunged 16.2 per cent to US$142.2 billion, the sixth straight monthly decline. The fall was expected and follows the biggest drop in new orders at mainland factories for over a year, as recorded in Monday’s HSBC-Markit purchasing managers’ index. The index dropped to 48.9 from 49.6 in March. A level below 50 indicates contraction in activity. Underscoring wider concerns about China’s economic health, Moody’s on Friday reported that 87 per cent of all Asian ratings downgrades in 2015 were Chinese corporates. Retail and real estate were especially exposed to the economic slowdown and anti-graft measures, wrote Moody’s analysts. As with previous signs of economic weakness, analysts believe this will only help the stockmarket in the near term. “Market sentiment seems to be improving on expectations of some type of stimulus. Given the recent macro figures, it seems likely that there is going to be an interest rate cut in the not very distant future,” said Gerry Alfonso, a director of Shenwan Hongyuan Securities. The People’s Bank of China has already reduced interest rates twice since November and lowered the amount of cash reserves kept by banks, in an effort to help boost market liquidity and corporate sector lending. Chinese investors lose average 44,000 yuan China’s stock investors suffered an average paper loss of more than 44,000 yuan in just three days because of price declines on Tuesday, Wednesday and Thursday this week. Figures show the Chinese share market capitalisation fell by 8.8 trillion yuan to 52.88 trillion yuan over the three days. As the Chinese market has 201 million trading accounts, it means that every account holder had an average of more than 44,000 yuan wiped off their assets by the unexpected slump. Chinese investors were among the world’s most optimistic according to a survey conducted by US asset management company Franklin Templeton Investments this year. But the recent fall has made many rethink their risk tolerance. Some investors have seen the level of their losses fall tenfold. “I was able to afford to buy an Audi car [worth about 400,000 yuan] with my profits three days ago, but now all I can afford is an Alto [worth 40,000 yuan],” China Business News quoted one investor as saying. Another investor told the newspaper he was considering quitting the market and locking in the profits he had. Investors in China have been among the most optimistic in the world, even as the country’s economy records its slowest growth in six years, the Franklin Templeton Investments survey found. In the poll carried out between February 12 and March 2, of the 500 Chinese respondents, 71 per cent said they believed the prospects for the country’s share market were rosy. However, in response to this week’s falls in the market, the overseas edition of People’s Daily said this retreat would not change the long-term trend of China’s stock market. “As the effects of various policies of economic reform start to work, the future of China’s stock market will remain bullish in the long term,” it said. Laura Zhou