At 2 p.m. in China, the Stock Market Rescue Suddenly Switches On
Afternoons in the Chinese stock market have turned into a waiting game for the state-backed funds to arrive.
Over each of the past four days, China’s SSE 50 Index of large-capitalization companies has rebounded by an average 6.4 percent in late trading from session lows. The gauge surged 15 percent over the four-day period, its biggest rally since 2008 and twice the 8.1 percent gain by the Shanghai Composite Index. The SSE 50 climbed 0.9 percent at the close on Tuesday, erasing an earlier loss of 4.8 percent.
The rallies are driven by government-backed funds buying shares to stabilize the market before a World War II victory parade on Thursday, according to IG Asia Pte. China’s 90 million individual investors have been pulling back from the market, with margin debt in Shanghai falling by $10 billion over the past four days to the lowest level since Dec. 25.
“When you see a straight line buying pattern in the last 45 minutes, that’s usually the national team supporting the market,” said Michelle Leung, chief executive officer of Xingtai Capital Management Ltd. in Hong Kong. "When you track market opens or you track outstanding margin balance, we could see the bulk of retail investors selling."
The government revived its intervention in equities on Thursday to halt the biggest selloff since 1996. The effort to support markets was part of a broader push to ensure nothing detracts from the parade, which is the government will use to demonstrate its rising military and political might. China’s financial markets will be shut Thursday and Friday to commemorate the event.
Lenders Surge
Banks led the last-minute rally by the SSE 50 gauge on Tuesday. Industrial & Commercial Bank of China Ltd. jumped 7.4 percent, erasing a 0.5 percent loss. Agricultural Bank of China Ltd. advanced the most since July 7. The Shanghai Composite dropped 1.2 percent, after falling more than 4 percent early in the session.
China’s securities regulator asked brokerages to step up their support for share prices by contributing 100 billion yuan ($15.7 billion) to the nation’s market rescue fund and increasing stock buybacks, according to people familiar with the matter. The China Securities Regulatory Commission gave the order at a meeting with representatives of 50 brokerages on Saturday, which CSRC Chairman Xiao Gang also attended, said the people who asked not to be identified because the meeting hasn’t been made public.
Investors should be wary about assuming the pattern of afternoon rallies will continue over the long term, said Bernard Aw, a strategist at IG Asia in Singapore.
"I don’t expect this intervention to continue in such a successive fashion longer out," Aw said. "I will still sit tight and await better valuations.”
Courtesy of bloomberg.com