China shares bounce back on rescue fund talks
Mainland China stocks bounced back moderately on Monday, ending the Shanghai Composite index’s three-week losing streak, after 21 Chinese brokerages over the weekend pledged billions of dollars to form a 120 billion yuan (HK$150 billion) stock rescue fund.
The massive fund, designated to stabilise the sagging stock markets, was followed up the next day by the People’s Bank of China’s decision to provide liquidity to China Securities Finance Corp, the only institution that offers margin lending to brokerages.
The two moves are among a flurry of market-boosting measures, including a halt on initial public offerings, initiated in the past days to revive the market.
The Shanghai Composite Index jumped 7.8 per cent at open, before finishing the day up 2.41 per cent, or 89 points, to 3,775.91. Apart from a short-lived decline in the afternoon session, the recovery was led by gains of large-cap banks and oil majors. Each of these sectors posted an 8 per cent increase.
Turnover in Shanghai jumped to 943.4 billion yuan on Monday from 643.5 billion yuan on Friday.
The People’s Daily said the markets would stabilise. “Rainbows always appear after rains,” as it put it.
Large state-owned banks were among the big winners of the day, with some of them gaining more than 8 to 9 per cent, relatively unusual due to their very large market cap
All 16 banks listed in Shanghai finished in the black, advancing at least 5 per cent, with the Agricultural Bank of China leading the pack. The state-owned lender jumped 9.97 per cent to close at 3.86 yuan. Its Hong Kong-traded stock retreated 1.79 per cent to HK$3.84, reflecting a divergence of views among domestic and international investors towards Chinese shares.
Gerry Alfonso, a trader at ShenyinWanguo Securities in Shanghai, said the market was sceptical for most of the day but sentiment seemed to improve towards the end, with a rally in large banks.
“Large state-owned banks were among the big winners of the day, with some of them gaining more than 8 to 9 per cent, relatively unusual due to their very large market cap,” Alfonso said.
Seven of the 30 listed oil and petrochemical companies finished in the positive territory on the back of a wave of buying interest in the two biggest firms in the sector. PetroChina surged 9.97 while Sinopec was up 8.74 per cent.
Taking a more cautious note, overseas brokers urged clients to take profits in the market recovery, citing hefty valuations even after the 30 per cent retreat since mid June.
“We suggest investors sell into the rally, especially brokers,” said equity strategists at Bank of America Merrill Lynch in a research note.
They argued the valuations of A shares remain stretched and might prompt more correction in the coming months.
“We assess that there is still a fairly high chance that the market may fall sharply again at certain points over the next few months, unless the People’s Bank of China makes an open-ended commitment to support the market.”
Most of the country’s 25 brokerages rose sharply, with Guoyuan Securities Company being the only exception, shedding 3 per cent after saying it had temporarily supedned its securities lending business and lowered the level of leverage offered to investors.
