China
stock markets rise again after Beijing intervention
Two
key indices jump sharply but concerns still persist over long-term
direction of Chinese economy
Reuters
Friday 10 July 2015
05.16 BST /
http://www.theguardian.com/business/2015/jul/10/china-stock-markets-rise-again-after-beijing-intervention
Chinese stocks rose
strongly for a second day on Friday, buoyed by a barrage of
government support measures, but worries persist about the long-term
impact that four weeks of stock market turmoil may have on the
world’s second-largest economy.
Over the past two
weeks Chinese authorities have cut interest rates, suspended initial
public offerings, relaxed margin lending and collateral rules and
enlisted brokerages to buy stocks, backed by cash from the central
bank.
Some analysts
predict further moves to come from the central bank, which often
makes policy announcements over the weekend, such as another rate cut
or relaxation of the amount of cash banks must hold as reserves.
The frantic efforts
to stem the market slide finally began to gain traction on Thursday,
when shares rose around 6% after the securities regulator banned
shareholders with large stakes in listed firms from selling.
The CSI300 index of
the largest listed companies in Shanghai and Shenzhen rose another 6%
on Friday, while the Shanghai Composite Index gained 5.4%.
At the depths of
their slump earlier this week Chinese shares had fallen more than 30%
from their mid-June peak, and for some global investors China’s
market turmoil had become a greater concern than the crisis in
Greece.
Analysts at Bank of
America Merrill Lynch said in a research note they expected the
ripple effect to eventually hit the real economy and corporate
earnings.
“We expect this
will likely hurt consumption down the road,” the note said. “More
critical is a potential distortion to credit flows due to the
impairment to financial institutions’ balance sheets.“
While Beijing’s
efforts appear to have put a floor under the stock market for now -
on Friday morning China’s main indexes were just below the levels
they opened at on Monday - it was still far from functioning
normally.
Roughly half of
China’s listed companies were suspended from trading as they tried
to sit out the market turmoil, and many of those still trading are
propped up by state-directed buying.
On Friday Shanghai
Securities News reported that insurers had brought 11.2bn yuan
($1.8bn) of equity since the rout began.
The plunge in
China’s previously booming stock markets, which had more than
doubled in the year to mid-June, has created a major headache for
President Xi Jinping and China’s top leaders, who are already
grappling with slowing growth.
Many investors say
China’s unprecedented attempts to arrest the slide have undermined
its commitment to give markets a “decisive” role in pricing
assets.
“They can probably
stabilise the market, but it will be a political decision, as they
will have to compel government, state agencies, banks, pension funds,
insurance companies to buy,” said Ashok Shah, investment director
at London & Capital.
“Essentially the
political decision is: to transfer the potential losses from private
investors ... to the state in some manner.“
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