Incentive talk stops panic sell-off in Shanghai stock market
Key stock index falls below crucial level before rumours of cut in mainland bank reserves reverse losses, boosting the market in HK
The mainland stock market crashed through a psychologically important level yesterday before a rumour about an incentive policy helped it recover early losses to finish higher.
The Shanghai Composite Index fell 0.7 per cent to hit an intraday low of 1,995.17 points in the early afternoon, breaking through the significant 2,000-point level. However, the index ended at 2,030.32, up 1.07 per cent on the day, marking the biggest daily gain since November 1.
Millions of individual investors regarded the 2,000-point level as a boom-to-bust threshold, and crashing below that level was thought to have sparked a bout of panic selling.
But as talk spread in the afternoon about an imminent cut by the central bank in banks' reserve requirement ratio, investors rushed back into the market to snap up shares in the belief the government was poised to put a floor under the symbolic 2,000-point level.
A reduction in the reserve ratio would free up cash that could be invested in the market, underpinning share prices.
In Hong Kong, the blue-chip Hang Seng Index rose 1.39 per cent, the best single day performance since September 14, boosted by the intraday reversal on the mainland market.