China stocks rise again after government intervention

China’s key stock index continued its rebound for a second consecutive day on Friday on the back of a raft of government support measures, although concerns lingered about the longer term fallout from weeks of

market discord.

The Shanghai Composite Index rallied 4.54 per cent to close at 3,877.80 on Friday, building on Thursday’s 5.8 per cent surge, after regulators this week banned major stockholders from selling stakes in listed companies and allowed banks to roll over loans backed by shares.

It’s still down nearly 30 per cent on its June 12 high, and more than 1,400 companies remained halted on mainland exchanges on Friday, locking sellers out of 50 per cent of the market.

Other measures include cutting interest rates, suspended initial public offerings, and requiring brokerages to buy stocks, backed by cash from the central bank.

There could be more announcements from the People’s Bank of China over the weekend.

Analysts were adopting a more sanguine tone on Friday. They point out how the 30 per cent decline was a frightener, it was nothing compared to the stunning rise in the market on the way up.

Before the market took a downturn on June 12, the Shanghai composite had risen by 152 per cent since July 2014 and nearly 60 per cent since the beginning of the year.

Already, Fidelity Investments, which oversees the largest China funds outside of the mainland, and Goldman Sachs, are recommending Chinese stocks as a buy after the sell-off.

Both banks believe that the slide which wiped €3.5 trillion in value from Chinese stocks had relatively little impact on earnings and real economic growth.

Emerging markets investment guru Mark Mobius agreed, with the Franklin Templeton fund manager writing in a blog post how he was looking for

value.

“In my view, the bottom line regarding the recent correction in China’s markets is essentially a story of too much euphoria and a natural correction,” said Mobius.

While we are already investing in China, our strategy is to wait until prices are so attractive that it’s time to look for further long-term opportunities. We believe that point is close with some stocks, but we probably haven’t hit the bottom yet. The good news is that, based on market studies we’ve done in the past, these types of bear markets (and I would deem this a bear market) tend to be short in duration; they don’t last too long, and when the recovery comes, it tends to be bigger in percentage terms.

The rally to some extent helped restore shattered confidence among the country’s 90 million stock investors, most of whom are retail traders with little financial expertise, the official Xinhua news agency reported.

“I will hold on and weigh my options until the index reaches 4,500 points again,” said retail investor Tian Xiaoqiang.

When he opened the stock account in May, the Shanghai index was at 4,800 and he hoped it could smash through its 6,124-point record from 2007.