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Chinese Stocks Rise amid Persistent Fears

Chinese Stocks Rise amid Persistent Fears

Chinese investors got a relief on Thursday, as stocks took an upward turn after a series of market-propping measures by the government. The main Shanghai index closed the day at 5.8% higher with shares in Shenzhen gaining 3.8%.

However, there are persistent warnings that mainland markets would fall. The valuation for many small companies are quite high, thereby, inserting pressure on those stocks. This has created the likelihood of big investors sticking to larger companies, which present relatively safer grounds.

This volatile situation has posed challenge to the leadership, which has swiftly moved in to place prop up measures on stocks. The government partly wants to help in restoring momentum in an attempt to maintain confidence and economic growth.

According to Li-Gang Liu, Chief economist for greater China at the Australia and New Zealand Banking Group, ‘’once investors have seen a rebound in the Chinese economic strength, confidence may return.’’

While economists have varied opinions on the magnitude of impact that the market malaise would have on the economy of China, many point out that it will hurt the sentiment of consumers and limit the spending of the middle class on goods and property. That would eventually shake consumption at a time when the economic growth of China is already on a slow pace.

An estimate by HSBC reveals that about 15% of the assets of households in China are trapped in the stock market. It further reports that many people may still be holding shares whose values are swiftly declining.

Investors are often unable to sell stocks due to the suspension of trading. At present, more than a third of the shares of companies listed in the Shanghai and Shenzen have been partly halted because of the measures aimed at limiting decrease in price and tracking panic selling.

Mr. Liu went on to emphasize that these kinds of administrative measures will continue to be in place but only have a limited effect. ‘’The rules can probably act as a temporary barrier but won’t change the overall fundamentals,’’ he added.

According to China’s national broadcaster, Xinhua, the Public Security Ministry said on Thursday that it is investigating ‘malicious’ short-sellers in an effort to reduce illegal market practices.

China’s security regulator had previously said on Wednesday that it would relax trading laws for corporate insiders looking to purchase shares at lower prices. Large state-owned corporations have been directed to buy shares, and the government has stopped new initial public offerings of stock. Besides, it has also ordered brokerage companies to form a fund aimed at market stabilization.

Work cited: http://www.nytimes.com/2015/07/10/business/chinese-stocks-stabilize-but-fears-persist.html?ref=business&_r=0

 

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