China’s stocks rose, erasing this week’s loss for the benchmark index, as speculation grew the government will take more measures to stem a $3.4 trillion market rout.
The Shanghai Composite Index climbed for the first time in three days, adding 2.3 percent to 3,744.21 at the close as technology and industrial companies rallied. China Securities Finance Corp., the government agency mandated to buy stocks to bolster the market, is seeking access to an extra 2 trillion yuan ($322 billion), said people with knowledge of the matter.
The Shanghai gauge has followed up a plunge of more than 30 percent with a 6.8 percent rebound since the July low as authorities took unprecedented measures to shore up markets. Investor interest remains tepid, with trading values in Shanghai falling to the lowest levels since March on Thursday and Friday’s volumes slumping 38 percent below the 30-day average.
“Investors believe the 3,500 to 3,600 level is where the government wants to hold firmly above, so bargain hunters are beginning to buy again,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co., who is adding to shares that will benefit from reforms in state-owned enterprises.
The government has spent as much as 900 billion yuan in the past two months to prop up the nation’s stock prices, according to Goldman Sachs Group Inc. The extra funding China Securities Finance is seeking would add to the 3 trillion yuan already made available by the government, according to the people, who asked not to be identified because the target hasn’t been made public. The 5 trillion yuan total may change depending on market conditions, they said.
Authorities have introduced a series of measures to prop up share prices and crack down on market manipulation. Regulators have banned stake disposals by major shareholders, suspended initial public offerings and compelled state-run institutions to support the market with equity purchases. They are also probing “malicious” short selling. About 515 companies are still halted on mainland exchanges, versus more than 1,400 in early July.
The CSI 300 Index rose 2 percent, with sub-indexes of technology, phone and industrial stocks gaining at least 2.9 percent. Hong Kong’s Hang Seng China Enterprises Index advanced 1.2 percent, while the Hang Seng Index added 0.7 percent.
East Money Information Co. jumped 6.7 percent, ending a two-day decline. China may introduce a five-year Internet development plan in the fourth quarter that’s focused on speeding up infrastructure construction of high-speed broadband, fourth-generation networks and cloud computing, the Economic Information Daily reported, citing unidentified people.
China Shipping Container Lines Co. surged by the 10 percent daily limit. China Eastern Airlines Corp. added 5.3 percent.
China will start to release economic reports for July from Saturday. Exports are estimated to have fallen 1.5 percent in a Bloomberg survey, while inflation probably accelerated to 1.5 percent. Recent data suggest growth in the world’s second-largest economy is still weak. Profits at industrial companies declined by 0.3 percent in June and a private gauge of manufacturing in July sank to a two-year low.
“There’s a consensus that the weekend data will show an economy struggling and the speculation is still there that policy, particularly fiscal, will be more loose,” said JK Life’s Wu.
Margin traders reduced holdings of shares purchased with borrowed money for the first time in three days on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling by 0.3 percent to 839.8 billion yuan.
The Shanghai gauge has risen 16 percent this year, compared with a 6.3 percent drop for the H-shares gauge. Strategists at CLSA Ltd. and Chart Partners Group Ltd. who predicted this year’s sell-off say H shares have further to fall.
“We believe A shares will continue to outperform H shares, especially now that there is a China government put on the markets in place,” Adam Reynolds, chief executive officer for Asia Pacific at Saxo Capital Markets Pte., wrote in an e-mail. “The underlying support is less for H shares though, as the Chinese authorities are not going to intervene to help stabilize that market.”
— With assistance by Shidong Zhang