Chinese stocks rose for a third day as small companies rallied and the benchmark index posted the smallest price swings since a market rout began.
The Shanghai Composite Index climbed 0.9 percent to 3,992.11 at the close, after trading within a range of 2.4 percentage points, the narrowest since June 12. The ChiNext index jumped 2.3 percent, extending a rebound from the July 7 low to 21 percent, as technology shares surged. A total of 576 companies were suspended on mainland exchanges Monday, or 20 percent of total listings, down from 635 at the close Friday.
The Shanghai Composite has rebounded 14 percent since July 8, following a month-long rout that wiped out almost $4 trillion, as policy makers introduced a spate of measures to bolster equities. People familiar with the matter said late last week that China Securities Finance Corp., a state-backed agency that provides margin finance and liquidity to the market, has up to 3 trillion yuan ($483 billion) on tap to support stocks.
“Investors are piling into small caps as they are likely to do better amid the rebound,” said Wu Kan, a Shanghai-based fund manager at Dragon Life Insurance Co., which oversees about $3.3 billion. “It looks like that the rebound has more legs as confidence has partially recovered.”
The CSI 300 Index added 0.2 percent. Hong Kong’s Hang Seng China Enterprises Index lost 0.6 percent. The Hang Seng Index fell less than 0.1 percent.
The government has achieved its goal of ceasing panic and stabilizing the market by taking timely measures, the Securities Daily reported Monday, citing Vice Finance Minister Zhu Guangyao. It is appropriate for China to take stabilizing measures when market volatility rises to a high level, Zhu was cited as saying.
Measures of phone and technology stocks in the CSI 300 rose more than 2 percent for the steepest gains among 10 industry groups. ZTE Corp., China’s second-biggest phone-equipment maker, jumped 4.4 percent while Sanan Optoelectronics Co. surged by the 10 percent daily limit. PetroChina Co. led an advance for energy producers, surging 4.3 percent.
The halted listed companies are valued at an average 243 times reported earnings, compared with 164 times for all companies traded in Shanghai and Shenzhen.
The ongoing suspensions are raising doubts about the sustainability of a rebound in stocks. The number of companies with trading halts exceeded 1,400, or around 50 percent of listings, during the height of the rout as the government took increasingly extreme measures to shore up equities.
“When half the market becomes illiquid, that was a sign that China had regressed, they’re not willing to accept the ups and downs of a capital market,” Roshan Padamadan, the founder and manager of Luminance Global Fund, said in an interview on Bloomberg Television from Singapore.
Margin traders increased holdings of shares purchased with borrowed money for the first time in three days on Friday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.3 percent to 921.3 billion yuan.
Chinese policy makers have gone to unprecedented lengths to put a floor under the market. Over the past few weeks, they’ve banned large shareholders from selling stakes, ordered state-run institutions to buy shares and let more than half of the companies on mainland exchanges halt trading. While it’s unclear how much China Securities Finance will ultimately deploy, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.
“The chance of stock price stabilisation is probably better as a result, but side effects can be pronounced,” Yao Wei, a China economist at Societe Generale SA in Paris, said in e-mailed comments. “How to wind down the intervention without causing another painful market correction would be tricky, to say the very least.”
— With assistance by Shidong Zhang