China Stocks Rise on Suspected State Buying After Margin Curbs

Updated on
  • Technology shares rally with yuan in late afternoon trading
  • Bourses reduce amount traders can borrow to buy shares

China’s stocks rose, led by technology shares, on speculation state funds bought shares after officials moved to tighten curbs on margin borrowing.

The Shanghai Composite Index rose 0.7 percent at the close, with all the gains coming in the last 40 minutes of trading. The measure slumped as much as 1.7 percent earlier. Suspected intervention by China’s central bank also helped the yuan jump sharply in offshore trading to reverse earlier losses. The Hang Seng China Enterprises Index retreated 2 percent in Hong Kong.

The Shanghai and Shenzhen stock exchanges cut by half the amount of borrowed money investors can use to buy shares, as authorities sought to prevent a repeat of the excesses that led a $5 trillion rout. Government-backed funds may have spent at least 1.5 trillion yuan ($235 billion) in the third quarter to prop up equities, according to Bank of America Corp. International Monetary Fund Managing Director Christine Lagarde announced late Friday that her staff have recommended the Chinese currency be included in the fund’s Special Drawing Rights, alongside the dollar, euro, pound and yen.

“There might have been some buying from state-linked funds today, particularly by the end of the day,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “Even after accounting for the hike in margin requirements, the macro picture remains relatively strong.”

Technology Shares

The CSI 300 Index added 0.5 percent. TheHang Seng Index dropped 1.7 percent. Trading volumes in the Shanghai Composite were 14 percent lower than the 30-day average. The benchmark index has risen 23 percent from the August low, spurred by monetary easing including six interest-rate cuts within a year and a rebound in margin debt.

Eight out of the 10 industry groups on the CSI 300 increased on Monday with technology and phone stocks climbing at least 1.5 percent for the biggest gains. Tsinghua Tongfang Co., a provider of computer and software services controlled by Tsinghua University, surged 6.5 percent. Tsinghua Unigroup, the investment arm of the university, will invest $47 billion in chipmaking and is in talks with a U.S. company involved in the industry, Reuters reported.

Han’s Laser Technology Industry Group Co. jumped 6.8 percent, while East Money Information Co. surged 6.2 percent. ZTE Corp., China’s second-biggest phone-equipment maker, added 2.9 percent to lead gains for telecom shares.

Brokerages Drop

Founder Securities Co. dragged brokerages lower with a 3.5 percent tumble. Citic Securities Co. retreated 1.8 percent. Haitong Securities Co. lost 1.7 percent.

Margin requirements will be raised to 100 percent from 50 percent starting on Nov. 23, the Shanghai and Shenzhen bourses said after local exchanges closed on Friday. The rule change means that investors with 1 million yuan ($156,895) in their account are limited to borrowing another 1 million yuan from a broker to buy more shares. Previously, they could borrow as much as 2 million yuan.

Margin financing, which shrank by more than half during the rout, has risen for six straight weeks as the Shanghai Composite bounced back into a bull market. The decision to tighten investor access to the loans came a week after regulators lifted a freeze on initial public offerings, removing one of the key measures of support for equities.

Yuan Inclusion

Margin debt and volume rose “rapidly” in recent weeks as some investors bought shares trading at high valuations, the Shanghai exchange said in a post on its Weibo account explaining the rule change. The move will help reduce leverage and ensure “healthy development” of the market, it said.

“While it might have a negative impact in the very short run, I think ultimately it’s a very good thing in the long run,” Brendan Ahern, managing director at Krane Fund Advisors LLC in New York, said by phone on Friday. It will “certainly will help de-risk, or take down, some of the inherent volatility in the market.”

While a gauge of 60-day price swings on the equity gauge has dropped from an 18-year high in September, volatility is still the most extreme among global benchmark indexes tracked by Bloomberg.

Air China Ltd. retreated 2.4 percent, while China Southern Airlines Co. fell 2.2 percent after the terror attacks in Paris, a popular destination for mainland shoppers. Europe is on high alert after at least 129 people were killed in more than half a dozen locations in the French capital. One Chinese national was slightly injured in the attack, the Xinhua News Agency reported. Chinese tourists have flocked to boutiques in Paris to take advantage of the weak euro.

— With assistance by Shidong Zhang, and Lisa Pham

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