The biggest intraday surge in Chinese stocks since 2008 has turned into a money-losing day for investors who piled in at the height of a rally sparked by government measures to prop up prices.
The Shanghai Composite Index, which jumped 7.8 percent at the open yesterday, pared its advance to 2.4 percent by the close. More than 800 of the index’s 1,106 shares are now trading lower than their volume-weighted average prices. The ChiNext index of small-cap stocks lost 4.3 percent, while the Shenzhen Composite Index sank 2.7 percent.
Mainland shares surged at the start of trading after authorities unveiled a series of market-boosting measures, brokerages pledged to buy shares and state-run media encouraged China’s 90 million stock investors to have confidence in the market. JPMorgan Chase & Co and Bank of America Corp advised clients to sell on rallies.
“I don’t know who supported the market at the open, but they are sitting on intraday losses already,” Paul Chan (陳柏巨), the Hong Kong-based chief investment officer for Asia ex-Japan at Invesco Ltd, said by phone. “The market is quite skeptical about those measures. It is very difficult to stabilize a leveraged market, dominated by retail investors. I don’t know how this will pan out, but in near term, it’s just going to expand more volatility.”
Over the weekend, China suspended initial public offerings and the central bank said it would provide liquidity for margin trading.
The Shanghai Composite had tumbled 29 percent in the past three weeks, erasing US$3.2 trillion of value, on concern leveraged traders are liquidating bets after equity valuations exceeded levels during the country’s stock-market bubble of 2007.
Chinese financial institutions were the most likely buyers yesterday, while individual investors who face margin calls are probably selling, said Jimmy Zuo, a trader at Guosen Securities Co (國信證券) in Shenzhen.
Outstanding margin debt on the Shanghai Stock Exchange dropped for a record 10 straight days through Friday.
Stocks with the biggest weightings in the Shanghai Composite gained, with PetroChina Co (中國石油天然氣股份有限公司) and Industrial & Commercial Bank of China Ltd (中國工商銀行) each surging more than 9 percent, after a group of 21 brokerages said they would focus their buying on large-cap shares.
Foreign investors unloaded shares through the Shanghai-Hong Kong exchange link on Monday, a record day of net selling, according to data compiled by Bloomberg. In Hong Kong, the Hang Seng China Enterprises Index dropped 3.4 percent.
“The market didn’t buy into the measures,” Zuo said. “The downbeat mood is quite hard to change.”
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