China saved – for now?
According to the Financial Times and other media outlets, a series of well-timed announcements from the government yesterday helped bring another nasty sell off on Chinese share markets to an end – but for how long?
As a result, the Shanghai Composite closed the day up 5.5%, after being down 5.1% at one stage in early morning trading as what seemed to be another selling wave emerged and threatened to swamp investors.
And the same wild swing was reported from the Shenzhen market where the index also reversed course to rise 4.8% at the end, while the small-cap ChiNext board went from an 8.1% slump in the morning session to finish 6.4% at the close.
The rebound yesterday left the Shanghai market up 14% for the quarter and 97% for the year to June 30.
That big rebound in afternoon trading helped markets across Asia – which were trying to rise from the big sell on Monday and on Wall Street and in Europe – recover their poise by the close – although that vanished as trading started in Europe and those fears about Greece intensified.
It certainly helped our market shake off a midday dip after the early rebound. By the close the ASX 200 was up 0.7% or more than 30 points, partially reversing Monday’s 2.3% sell off (by headless chickens). But it still lost ground in the month and quarter.
The gains helped the Shanghai and Shenzhen markets escape a bear market and ended a losing streak that has wiped more than $US 2 trillion off the market capitalisation of companies listed on China’s two stock exchanges since June 12.
Chinese authorities moved to try and halt the slide. Yesterday, media reports said officials said they are considering lowering stamp duties on stock purchases, which would encourage buying (an old ploy). The central bank also added more cash into the financial system, following a cut to interest rates over the weekend (it’s the second time this has been done in a week). And in yet another move:
The Finance Ministry on Monday announced that the state’s pension fund could be allowed to invest up to 30% of its net asset value in securities.
The FT reported that China’s Asset Management Association of China issued a statement titled: “Beautiful sunlight always comes after wind and rain,” urging members to “seize the investment opportunity” following a near 25 per cent fall in the Shanghai market over the past fortnight.
“As we pursue personal profit, we should also pay attention to others’ profits and not abandon our integrity as we grab for riches, not kill the goose that laid the golden egg,” the industry body said, according to the FT report.
"The government itself has also been intervening to soothe fears of a stock market collapse. Late on Monday, China’s securities watchdog said that an “excessively fast correction” was not healthy, while the finance and social security ministries published draft rules that would permit the state pension fund to buy stocks. Such a move could allow up to Rmb600bn ($US97 billion) to enter the market,“ the paper reported on line.
That $US97 billion sounds a lot (it is) but compared to the size of the value of the Chinese markets – still well over $US7 trillion, it’s a drop in the ocean. But the symbolic nature of the announcement was the big point.
Media reports also suggested that China’s state wealth fund and other government entities were buying shares on Monday and yesterday trying to quell the fear and loathing among investors.
The move had a bigger, more positive impact than did the interest rate cut and reduction in bank reserve asset ratios over the weekend.
Elsewhere in Asia, investors were watching Greece and its looming default on a €1.55 billion ($US1.73 billion) loan due to the International Monetary Fund on Tuesday. That will be known after 8 am Sydney time.
Hong Kong’s Hang Seng Index rose 1.1%, while Australia’s ASX 200 index ended up 0.7% (and lost ground for the quarter) while shares in Japan rose 0.6%. The Nikkei 225 notched its fifth consecutive quarter of gains, rising 5.4% during the second quarter.
