China’s stocks rallied in late trade after tumbling earlier, helping the benchmark index to its biggest intraday rebound in eight years.
The Shanghai Composite Index rose 2.2 percent to 4,576.49 at the close after sinking as much as 4.8 percent in the morning session, a 312-point recovery that was bigger than any since June 2007. Financial companies were among the biggest gainers, with Ping An Insurance Group Co. and Industrial & Commercial Bank of China Ltd. climbing more than 4 percent. Mainland markets were closed Monday for a holiday.
Tuesday’s rebound followed a 13 percent tumble by the Shanghai gauge last week, the biggest since 2008, amid concern valuations were unsustainable and as initial public offerings diverted funds from existing equities. Margin positions on the city’s bourse fell for the first time in a month on Friday.
“Investors came back to the market after it was oversold,” said Wu Kan, a Shanghai-based fund manager at Dragon Life Insurance Co., which oversees about $3.3 billion. “It looks like the market has reached a short-term bottom for now. But there will be more wild moves ahead.”
A gauge of 30-day volatility on the Shanghai Composite climbed to its highest since September 2009 on Friday. About $1.3 trillion was wiped off mainland Chinese equities last week, more than the value of Australia’s entire stock market.
The Hang Seng China Enterprises Index added 1.7 percent Tuesday and the Hang Seng Index rose 0.9 percent.
The CSI 300 Index jumped 3.2 percent, led by consumer and industrial stocks. Wuliangye Yibin Co., the nation’s second-largest maker of baijiu liquor, jumped 9.3 percent and China Eastern Airlines Corp. surged by the 10 percent daily limit.
Last week’s declines came after the securities regulator announced plans June 12 to limit the amount brokerages can lend for stock trading, while banning firms from helping investors to get access to margin debt through off-exchange deals. There’s at least $364 billion of borrowed money riding on stocks in Shanghai and Shenzhen.
“The A-share market correction is likely to continue in the short term as the leverage- or liquidity-driven beta rally could be over,” HSBC Holdings Plc analyst Stephen Sun wrote in a report today.
The magnitude of further losses will depend on the size of selling by senior management and major shareholders, Sun wrote. Net insider selling has averaged 80 billion yuan a month this year, above the 10 billion yuan a month seen in 2013-2014, Sun wrote.
The ChiNext rebounded 2.4 percent after dropping as much as 4.8 percent. The gauge traded at a record 131 times reported earnings this month, five times the level of the Shanghai Composite Index, after the small-cap gauge tripled in just 12 months. BlueFocus Communication Group Co. and Beijing Dinghan Technology Co. both surged by the 10 percent daily limit.
— With assistance by Shidong Zhang, and Fox Hu