A range of extra measures aimed at calming Chinese stock markets had the desired effect on Tuesday, sending share prices soaring and halting a two-week slide.
The Shanghai Composite closed the day with a 5.5 per cent gain, having at one point been as much as 5.1 per cent lower. The Shenzhen index also reversed course to rise 4.8 per cent, while the small-cap ChiNext board swung from a 8.1 per cent drop in the morning session to finish 6.4 per cent higher.
The gains snap a losing streak that has wiped more than $2tn off the market capitalisation of companies listed on China’s two stock exchanges since June 12.
Earlier on Tuesday, the Asset Management Association of China issued a statement titled: “Beautiful sunlight always comes after wind and rain,” urging members to “seize the investment opportunity” following a near 25 per cent fall in the Shanghai market over the past fortnight.
周二早些时候，中国证券投资基金业协会(Asset Management Association of China)发布一份题为《艳阳总在风雨后》的倡议书，督促该协会成员在沪市两周来下跌了近25%之后，“积极把握投资良机”。
“As we pursue personal profit, we should also pay attention to others’ profits and not abandon our integrity as we grab for riches, not kill the goose that laid the golden egg,” the industry body said.
The government itself has also been intervening to soothe fears of a stock market collapse, after an unexpected weekend interest rate cut failed to right the ship.
In a statement posted to its official Weibo account late on Monday, the securities watchdog said that an “excessively fast correction” was not healthy — a signal to investors that regulators would seek to stabilise the market.
Separately, late on Monday the finance and social security ministries jointly published draft rules that would permit the state pension fund to invest in stocks, potentially allowing Rmb600bn ($97bn) to enter the market.
“It is clear the authorities are keen to promote stability and we are seeing signs the various Chinese markets are responding,” said Chris Weston, strategist at IG.
In addition, there were signs that Central Huijin, the main state-owned financial holding company, had moved to anchor demand for blue-chip stocks by buying Rmb10bn in large-cap exchange-traded funds on Monday.
Chinese equities swung wildly on Monday before ending down significantly, as the central bank’s rate cut failed to slow the market rollercoaster.
The Shanghai Composite index sank another 4.6 per cent in early trading on Tuesday and has now fallen 23 per cent since its seven-year high hit on June 12, putting it in technical “bear market” territory.
Seeking to calm markets, China Securities Regulatory Commission spokesman Zhang Xiaojun said on Weibo that the recent market tumble was the natural result of “profit-taking” following previous big gains. In spite of the market’s fall on Monday, he added, there were more willing buyers than on Friday, while trading volume and liquidity remained healthy.
The draft rules on pension investment follow years of discussions about looser investment restrictions on public pension funds. Greater freedom would allow fund managers to seek higher returns, and help plug a looming pension shortfall as China’s ageing population swells the ranks of retirees. The draft rules would allow up to 30 per cent of the fund to be in stocks. China’s stock market is widely seen as policy-driven, with investors taking cues from state media and official pronouncements about the degree of government support for the market.
During the 2007 bull run that propelled the Shanghai index to a record high, the finance ministry increased a stock transaction to cool the market. As the market was collapsing in 2008, the tax was cut and eventually abolished.
The CSRC has in the past restricted approvals for initial public offerings in times of market weakness to avoid diverting demand from existing shares. IPOs were completely frozen from October 2012 to January 2014.
The state also periodically deploys public funds to boost the market by directly buying shares.
In spite if Monday’s fall stock exchange data show net inflows worth about Rmb95 for four blue-chip ETFs, including those tracking the SSE 50 and CSI 300 large-cap indexes. Local media speculated the inflows may have come from Central Huijin, a subsidiary of the sovereign wealth fund that holds stakes in major domestic financial institutions.
尽管周一股市大跌，但数据显示有价值约95亿元人民币的净资金流入四家蓝筹权重ETF，其中包括跟踪投资上证50 (SSE 50)和沪深300 (CSI 300)权重股指数的ETF基金。中国国内媒体猜测，这些净流入资金可能来自中央汇金。中央汇金是中国主权财富基金的子公司，持有国内主要金融机构的股份。
Central Huijin has frequently stepped in to buy blue chips in periods of flagging confidence. Late last month, an unexpected share sale by Huijin helped spark a big loss.