China’s stocks rise first time this week on prospect of government bailout plan

China’s stocks rose on Wednesday for the first time this week, led by smaller companies, on optimism that the Shenzhen government will take measures to bail out companies hit by the liquidity squeeze.

The benchmark Shanghai Composite Index added 0.6 per cent, while the Shenzhen Composite Index of mostly smaller companies fared better with a gain of 0.8 per cent. Hong Kong’s market was shut for a public holiday.

Two gauges of small-caps on the Shenzhen exchange rallied at least 1.2 per cent on media reports that the Shenzhen government has allocated at least 10 billion yuan (US$1.5 billion) to bail out the companies whose shares that are pledged as collateral for loans. More than 20 Shenzhen-based companies have already been selected to receive support through loans or equity investments, according to the Shanghai Securities News.

“Shenzhen government’s move is helpful in boosting market confidence and it remains unclear if other local governments will follow suit,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “The downward trend on the market hasn’t been reversed yet. The major concern is about a slowdown in the economy and a deceleration in corporate earnings growth.”

China’s statistics bureau is due to release data on third-quarter economic growth on Friday. Economic expansion probably moderated to 6.6 per cent from 6.7 per cent for the previous three-month period, according to the median estimate of 39 economists polled by Bloomberg.

The Shanghai Composite gained 15.28 points to 2,561.61 at the close on Wednesday. The Shenzhen Composite Index added 10.18 points to 1,266.55.