China’s stocks rose in late mainland trading to reverse an earlier plunge as investors weighed the level of government support for the equity market.
The Shanghai Composite Index gained 1.2 percent to 3,794.11 at the close, erasing a loss of as much as 5.1 percent. The gauge slumped 6.2 percent on Tuesday. Hundsun Technologies Inc. and Dongxu Optoelectronic Technology Co. both jumped 10 percent, leading a rally for companies that disclosed government-backed funds had bought their shares. The Hang Seng Enterprises Index slid 1.2 percent to a nine-month low in Hong Kong.
“The market expects the government will step in if the Shanghai Composite falls towards 3,500, but more and more people in the mainland sees that the bull market is over,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “With weak sentiment, we will continue to see unstable moves in the market.”
Stocks tumbled this week after the securities regulator said late Friday that China Securities Finance Corp., the state agency tasked with supporting share prices, will reduce buying as volatility falls. China’s richest traders are cashing out of stocks, while a record drop in yuan positions at the central bank and financial institutions last month signaled investors are moving money out of the country.
Volatility in Chinese markets has reverberated around the world over the past two months as slowing growth complicates efforts by the ruling Communist Party to loosen its grip on the financial system and shift to a more consumer-driven economy.
As the state stepped in to shore up equities, China’s wealthiest investors have been the quickest to sell. The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to data compiled by China Securities Depository and Clearing Corp.
The Shanghai Composite rebounded 14 percent from its July 8 low through Monday after the government took unprecedented measures to end a $4 trillion rout. The yuan tumbled by the most in 21 years last week after an unexpected devaluation by the central bank. The Chinese currency was little changed at 6.3965 per dollar in Shanghai on Wednesday.
The CSI 300 gained 1.6 percent, while the Hang Seng Index dropped 1.3 percent.
Hundsun Technologies Inc., partly owned by Jack Ma’s financial investment company, rallied by the daily limit in Shanghai after disclosing that government-backed funds bought its shares, overshadowing news of a regulatory probe. The company said late Tuesday that Central Huijin Investment Co. owned 1.76 percent of its shares as of Aug. 14 while China Securities Finance Corp. held 1.23 percent.
Wuhu Token Science Co., which said Central Huijin had a 1.42 percent stake as of Aug. 14, jumped 10 percent. Central Huijin is a unit of China’s sovereign wealth fund while China Securities Finance was mandated by the government in July to buy stocks as part of efforts to stem a stock-market rout.
Technology and material companies led gains on the CSI 300. Dongxu Optoelectronic Technology Co. surged by 10 percent, while Baoshan Iron & Steel Co. advanced 7.2 percent. Leshi Internet Information & Technology (Beijing) Co., the biggest mainland-listed Internet video provider, added 3.1 percent.
Trading volumes in Shanghai were 5 percent below the 30-day average. Margin traders cut holdings of shares purchased with borrowed money for the first time in eight days on Tuesday.
Chinese equity valuations are still among the most expensive in the world. The median stock on mainland bourses traded at 72 times reported earnings on Monday, higher than any of the 10 largest markets. It was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.
The Shanghai Composite has dropped 27 percent from its June 12 peak, after a 152 percent surge in the previous 12 months.
“It’s still over-priced and would be vastly lower if it wasn’t for ineffectual government intervention that is merely delaying the inevitable,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. “The basic issue is that PE ratios are crazy in too many places.”
— With assistance by Shidong Zhang, and Kana Nishizawa