Shanghai stocks are trapped in the biggest three-week rout since 1992. Oil prices are sinking. And yet PetroChina Co. shares are having the best week this year.
The divergence is a tell-tale sign of buying by state-backed funds, according to IG Asia Pte Ltd. PetroChina, which has the biggest weighting on the Shanghai Composite Index, has surged 12 percent this week, the most since December, compared with a 11 percent plunge by the benchmark equity gauge. Crude has fallen 5.2 percent.
Share gains in state-owned giants comes as the government unleashes a series of measures to try to limit the world’s biggest equity losses. The central bank cut interest rates over the weekend, while the securities regulator eased rules on margin lending and pledged to investigate market manipulation.
“It seems that government funds are buying big SOEs including PetroChina,” said Bernard Aw, a strategist at IG Asia in Singapore. “Market stabilization is the objective of any state-led buying.”
Industrial & Commercial Bank of China Ltd., which has the second-largest weighting on the benchmark gauge after PetroChina, has jumped 6.6 percent this week. Gains in state giants were particularly notable Thursday as the Shanghai Composite fell below the 4,000 level that Macquarie Group Ltd. and Guosen Securities Co. said officials were trying to defend.
PetroChina climbed 1.3 percent at the close. The Shanghai Composite sank 5.8 percent as 24 stocks fell for each one that rose. The oil company soared 8.8 percent Thursday on the highest volume in two months, with most of the gains coming in the final hour of trading. Last-minute surges in PetroChina also became commonplace in July 2013 amid speculation of state fund buying after the Shanghai index tumbled 14 percent the previous month.
The government will do “whatever it takes” to restore investor confidence because fear would trigger forced liquidations and panic selling, Judy Zhang, an analyst at BNP Paribas SA in Hong Kong, wrote in a note dated Friday.