China ADRs Post Best Four-Day Gain Since 2011 on Policy Support

U.S.-traded Chinese stocks rose for a fourth day as the government’s measures intended to prop up mainland equities eased concern that officials won’t be able to contain a rout that erased as much as $3.9 trillion of market value.

The Bloomberg China-US Equity index added 0.4 percent to 125.67 in New York Tuesday, taking its four-day gain to 8.6 percent, the biggest since October 2011. The American depositary receipts of Xunlei Ltd advanced 5.6 percent to $9.79 in the best performance of the gauge while Sky Solar Holdings Ltd slumped the most, dropping 8.1 percent to $7.52.

The advance follows attempts by the Chinese government to halt last week’s plunge in mainland stocks, also known as A-shares. China Securities Depository and Clearing Co. will ban the opening of new accounts or limit the use of existing ones if owners open virtual accounts or lend out accounts to others, according to a statement Tuesday. Other measures have included prohibiting large shareholders from selling and ordering state-run institutions to buy equities.

“The government has taken pretty aggressive steps that are going to help stabilize the market for sure -- they don’t want to see panic,” Brad Gastwirth, Chief Executive Officer at ABR Investment Strategy in Boca Raton, said by phone Tuesday. “If the sentiment has changed in the mainland market, that’s certainly trickled down to the ADRs trading in the U.S. and helped boost them.”

Market confidence

The People’s Bank of China will “flexibly use various monetary policy tools” to keep liquidity appropriate and credit growth reasonable, the bank said in a statement Tuesday after a quarterly monetary policy committee meeting. Aggregate financing, which includes bank loans and off-balance-sheet credit, was 1.86 trillion yuan ($300 billion) in June, according to the PBOC. The sum was higher than all 23 forecasts in a Bloomberg survey of economists.

Chinese policymakers are trying to boost economic growth through a strong equity market, said Jeff Papp, a senior analyst at Oberweis Asset Management Inc, which oversees about $1.9 billion.

“People are starting to understand that the Chinese government has clear intentions to keep the local markets at elevated levels and keep them performing in a strong way,” Papp said by phone Tuesday. “People are more confident that if the markets are overvalued, it doesn’t really matter because the government hopes to keep them at elevated levels.”

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the largest Chinese ETF in the U.S. tracking mainland shares, slid 1.8 percent to $42.07 on Tuesday. The iShares China Large-Cap ETF tracking Hong Kong shares sank 0.4 percent to $42.72.

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