China stocks rise amid government efforts to shore up market

China’s stocks advanced the most in two weeks amid government efforts to shore up the share market after the worst start to a year on record.

The CSI 300 Index gained 1.8 per cent at the close, its biggest gain since December 21.

The Hang Seng China Enterprises Index lost 0.8 per cent at 3.04pm. Datong Coal Industry and Shaanxi Coal Industry jumped by the 10 per cent daily limit as Premier Li Keqiang pledged to tackle overcapacity in the industry.

The central bank cut the yuan reference rate to the weakest since April 2011, a sign that policy makers are becoming more tolerant of depreciation as intervention costs rise and economic growth slows.

The government revived intervention in the nation’s $6.5 trillion stock market this week as state-controlled funds bought equities on Tuesday after a 7 per cent plunge on January 4 and the securities regulator signaled a selling ban on major investors will remain beyond its January 8 expiration date, according to people familiar with the matter.

The People’s Bank of China injected the most cash since September into the financial system to keep a lid on borrowing costs, while the monetary authority was also said to intervene in the currency market to prevent excessive volatility.

“There’s word spreading in the market that state funds are buying, but the idea is to hold up the market, not to bolster it by a large margin,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai, adding that he’s keeping equity holdings unchanged at about 40 per cent of assets.

“The market has basically stabilized after the tumble and investors are waiting for further policies that will boost sentiment.”

The Shanghai Composite Index climbed 2.3 per cent, the largest gain since December 14.

The Hang Seng Index fell 0.9 per cent. The premium of China-listed stocks over their counterparts traded in Hong Kong widened by the most since December 14.

The Shanghai gauge tumbled 7.1 per cent in the first two days of trading in 2016 and the yuan had its worst start to a year since 1994 amid concerns China’s economic slowdown is deepening.

The yuan, which weakened the most since 1994 last year, has “limited” room for further depreciation as slumping oil prices will help boost the government’s current-account surplus and offset capital outflows, according to Goldman Sachs.

Bloomberg