China's Stocks Advance for Second Day Amid Stimulus Speculation

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Stocks Rally in China, Japan on Economic Optimism

China’s stocks advanced for a second day, led by small-company shares, amid speculation the government will step up stimulus to revive the flagging economy.

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The Shanghai Composite Index climbed 2.3 percent to 3,243.09 at the close, with more than 30 stocks advancing for each that fell. The gauge jumped 2.9 percent on Tuesday, with almost all of the gains coming in the last hour of trading on speculation state funds stepped in to buy shares. The ChiNext measure of small-capitalization shares increased 3.5 percent.

China will speed up construction of some major projects and step up efforts to remove fees and reduce tax burden on companies, the finance ministry said in a statement on its website. Fiscal stimulus will play a larger role in boosting growth in the second half of 2015, Nomura Global Markets Research analysts wrote in a report dated Wednesday. Global markets have rallied this week after central bank Governor Zhou Xiaochuan said over the weekend the plunge in Chinese equities is almost over.

“Some type of stimulus is likely going to happen,” said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Hong Kong. “The situation of large-caps is more stable, but mid- and small-size companies are in more need of such stimulus.”

The Hang Seng Index rose 4.1 percent in Hong Kong, with the Hang Seng China Enterprises Index surging 5.2 percent, the most since April 8. The CSI 300 Index gained 2 percent. Trading in Shanghai was 10 percent below the 30-day average.

Equity Futures

Technology and energy shares led gains on mainland bourses, with Searainbow Holding Corp. rising 5.7 percent, taking its advance this week to 28 percent. PetroChina Co. climbed 3.6 percent.

The world’s biggest stock-index futures market is the latest casualty of China’s unprecedented intervention. Volumes in the country’s CSI 300 and CSI 500 Index futures sank to record lows on Tuesday after falling 99 percent from their June highs. Ranked by the World Federation of Exchanges as the most active market for index futures as recently as July, liquidity in China has dried up as authorities raised margin requirements, tightened position limits and started a police probe into bearish wagers.

CSI 300 futures expiring this month rose 1.6 percent on turnover that was more than 90 percent below the 30-day average.

The Shanghai Composite tumbled 39 percent from its June high through Tuesday to erase $5 trillion in value on mainland bourses as leveraged investors fled amid signs of deepening slowdown in the economy. Traders decreased holdings of shares purchased with borrowed money on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling 0.4 percent to 613.3 billion yuan ($96 billion).

China’s government spent 1.5 trillion yuan trying to shore up its stock market since the rout began three months ago through August, according to Goldman Sachs Group Inc. A gauge of 100-day volatility in Shanghai climbed to its highest level since 1997 on Tuesday, while turnover sank to a six-month low.