Wall Street Journal – by Gregor Stuart Hunter
Chinese shares made their biggest daily gain in six years Thursday, restoring confidence in Beijing’s suite of attempts to rescue its struggling stock market.
The Shanghai Composite rose 5.8% to 3709.33, after losses in eight of the last 10 trading days. The smaller Shenzhen market rose 3.8%. Still, both indexes have lost around a third of their value in the past month. The small-cap ChiNext board, which has shed some 38% from its June highs, rose 3%.
Some companies that had halted trading of their shares lifted suspensions, and their stock prices immediately rose by the maximum 10%. These include Hangzhou Iron & Steel Co., Zhejiang Huahai Pharmaceutical Co. and Leshi Internet Information and Technology Corp. Beijing. A total of 1,473 companies, or 51.1% of all stocks on the Shanghai and Shenzhen markets, remain suspended.
Stocks in Hong Kong, which suffered their worst trading session since the global financial crisis on Wednesday, closed up 3.7%, the biggest one-day gain for the index in three months. A gauge of Hong Kong-listed Chinese companies, known as H-shares, advanced 3.1%.
“The market shows signs of stabilizing because the regulator came to rescue small-caps, especially those on the ChiNext, which eased the liquidity crisis and gave investors a much-need dose of confidence,” said Tang Yonggang, an analyst at Shenyin Wanguo Securities. On Wednesday, regulators announced that the China Securities Finance Corp., a commission unit that provides financing for margin trading, would step up purchases of small-cap stocks.
The gains also follow a report by state-run Xinhua News Agency that Chinese police had visited the China Securities Regulatory Commission to investigate “malicious short selling,” a move widely interpreted as another stab at arresting the selloff.
Regulators have increased scrutiny of short selling in the wake of China’s recent stock decline, which wiped out roughly $4 trillion in value from Chinese equities. Margin trading allows investors to borrow stocks from brokerages to short shares, or bet that the prices will fall.
China’s freely traded offshore yuan was flat at 6.208 per U.S. dollar, after hitting a four-month low Wednesday. China’s domestic bonds also stabilized following Wednesday’s selloff, with the benchmark 10-year central government bond yield falling 0.05 percentage points to 3.435%. Yields fall when prices rise.
Whether Beijing’s moves are enough to reverse a broader selloff, closing in on its fourth week, remains unclear. China’s outstanding margin loans fell to 1.5 trillion yuan ($241.7 billion) as of July 8, down from 2.27 trillion yuan at its peak on Jule 18, according to data provider Wind Info. But some say the unwinding of margin loans—one of the main triggers for the recent spate of volatility—is still far from complete.
“Until the margin buyers are gone, we don’t expect a stabilization or possibility for the market to start heading higher again,” said Sean Yokota, head of Asia strategy for SEB Bank. “We are only one-third of the way through [deleveraging].”
In recent days, Beijing has added to a growing list of attempts to get the market back in gear. On Wednesday, the government set out new emergency tactics to encourage loans for buying stocks and prevent some selling among big shareholders.
Investors worry that a shock to the world’s second-largest economy could have broad repercussions, weighing on demand for goods and services broadly, and pinching global companies that are closely tied to Chinese growth. China is one of the world’s largest consumers of oil, metals and food.
Copper, often seen as a barometer for the global economy, fell this week to a six-year low on concerns of China’s slowdown. Crude-oil prices recovered Thursday, but have been weak because of concerns about oversupply. August Brent crude on London’s ICE Futures exchange rose 67 cents on Thursday to $57.72 a barrel.
“One of the key backdrops [for the oil market] is what’s currently happening in China. My question is whether China is slowing. Or is China failing?” said Ellen Ruhotas, managing director of consulting firm Ratio Group.
Elsewhere, Asian markets recovered in line with China’s gains. Japan’s Nikkei 225 Stock Average rose 0.6%, Australia’s S&P/ASX 200 erased early losses to close up 0.2% and South Korea’s Kospi was up 0.6%.
—Yifan Xie, Fiona Law and Eric Yep contributed to this article.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com
http://www.wsj.com/articles/asians-shares-lower-as-chinas-rout-grips-global-markets-1436405225
Another article I read on this topic today claimed that the Chink government threatened to arrest these short sellers, and that’s when the stock prices rebounded.
The Wall Street Journal would rather omit that fact because it doesn’t support their illusion of everything being fine in the financial markets.
Smoke and mirrors. The markets crashed, but they’re going to keep kicking the can down the road as far as they can. The currencies still have value as long as someone else is willing to accept them for goods and services, and their respective governments will support that illusion as long as they can get away with it.