China is still in trouble as the attempt by the government to bail out the stockmarket yesterday fell far short of what was wanted to convince nervy investors that the worst was over.
Thanks to some strategic buying late in the afternoon and Chinese blue chip stocks, the Shanghai market finished up 2.4%. The buying was put down to Chinese wealth and state investment funds.
Some of those blue chips that rose sharply in Shanghai to close limit up (a gain of 9.9% on the day), but in Hong Kong trading they fell, most by 2% or more – a good pointer to the illusory nature of the gains on the mainland. One of China’s largest brokerages, Haitong Securities Co, saw its shares jump 6.7% in Shanghai, but plunge more than 15% in Hong kong.
Hong Kong’s Hang Seng Index shed 3.2% yesterday, the worst one-day performance since 2012. The index is now down 11.3% since its April high,and is therefore in correction territory, defined as a drop of more than 10% from its most recent peak.
Bloomberg said that despite the rise, losing stocks outnumbered gainers 2 to 1 in Shanghai yesterday.
Before the buying appeared, Shanghai was heading for an embarrassing loss – embarrassing because of the amount of support thrown at the market over the weekend, culminating in the news late Sunday night that the central bank would maintain liquidity to the market via the state-owned entity which finances margin trading via loans to brokers which on lend the money to investors for share trading via margin – the unwinding and calls on that margin trading during the recent plunge has been the key factor behind the recent sell off.
That is the first time in China that central bank money is being lent to groups other than the banks
Chinese stocks had briefly surged across the board in morning trading after the government announced the various moves on Saturday and Sunday designed to prop up the market. The Shanghai Composite climbed 7.8% opening trading but closed up 2.4%per cent, after twice dipping into negative territory.
Despite the gains in Shanghai, the tech-heavy Shenzhen Composite finished the day down 2.7%, having risen as much as 6.6% at the start of trading and falling as much as 5.5 during the trading session.
The speculative start-up ChiNext board ended 4.3%, while Chinese stocks listed in Hong Kong slid 3% as the market there had its worst day since early 2012.
In an article published yesterday, the People’s Daily, the state-owned flagship newspaper expressed confidence that “China is capable and confident it can maintain the capital market stable and sound”. The commentary was yet another attempt to try and convince small investors that the market rout would be halted.
And in a further pointer to the loss of confidence by western investors, the Wall Street Journal reported that "nervous investors still whisked the most capital out of China via the Stock Connect than on any day since the trading link between Hong Kong and Shanghai launched in November. A total of 13.4 billion yuan ($2.16 billion) was withdrawn over the course of the trading day. Chinese investors also withdrew a net 1.45 billion yuan from Hong Kong-listed stocks.”
