Chinese Stocks Gain for Second Day as State Revives Intervention

  • Central bank cuts yuan fixing rate to lowest since April 2011
  • China Vanke shares tumble most in 18 months as trading resumes

China’s stocks advanced the most in two weeks amid government efforts to shore up the share market after the worst start to a year on record.

The CSI 300 Index gained 1.8 percent at the close, its biggest gain since Dec. 21. The Hang Seng China Enterprises Index lost 0.9 percent. Datong Coal Industry Co. and Shaanxi Coal Industry Co. jumped by the 10 percent daily limit as Premier Li Keqiang pledged to tackle overcapacity in the industry. The central bank cut the yuan reference rate to the weakest since April 2011, a sign that policy makers are becoming more tolerant of depreciation as intervention costs rise and economic growth slows.

The government revived intervention in the nation’s $6.5 trillion stock market this week as state-controlled funds bought equities on Tuesday after a 7 percent plunge on Jan. 4 and the securities regulator signaled a selling ban on major investors will remain beyond its Jan. 8 expiration date, according to people familiar with the matter. The People’s Bank of China injected the most cash since September into the financial system to keep a lid on borrowing costs, while the monetary authority was also said to intervene in the currency market to prevent excessive volatility.

“There’s word spreading in the market that state funds are buying, but the idea is to hold up the market, not to bolster it by a large margin,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai, adding that he’s keeping equity holdings unchanged at about 40 percent of assets. “The market has basically stabilized after the tumble and investors are waiting for further policies that will boost sentiment.”

The Shanghai Composite Index climbed 2.3 percent, the largest gain since Dec. 14. The Hang Seng Index fell 1 percent. The premium of China-listed stocks over their counterparts traded in Hong Kong widened by the most since Dec. 14.

The Shanghai gauge tumbled 7.1 percent in the first two days of trading in 2016 and the yuan had its worst start to a year in two decades amid concerns China’s economic slowdown is deepening. 

The yuan, which weakened the most since 1994 last year, has “limited” room for further depreciation as slumping oil prices will help boost the government’s current-account surplus and offset capital outflows, according to Goldman Sachs Group Inc.

Coal Support

A private Chinese services gauge slumped to the second-lowest reading since the series began a decade ago and close to a level signaling contraction, suggesting conditions may be weaker than the government’s official index indicates. The reading in a Caixin Media and Markit Economics survey of services-purchasing managers fell to 50.2 in December, down from 51.2 a month earlier, according to the report released Wednesday.

Gauges of energy and materials stocks jumped at least 5.6 percent, the biggest gainers among industry groups on the CSI 300 Index. China Shenhua Energy Co., the nation’s largest coal producer, and China Coal Energy Co. both surged 9.9 percent.

Premier Li said the government would help the coal industry through tough times as it faces serious overcapacity and falling prices, according to a statement posted on the central government website after Li’s visit to Shanxi province.

New World Jumps

China Vanke Co., the developer whose shares were halted last month amid a battle for control with its largest shareholder, dropped the most in a year-and-a-half after resuming trading in Hong Kong. The stock slumped 9.2 percent after plunging as much as 14 percent. The company’s shares remain halted in China.

New World China Land Ltd. jumped 21 percent in Hong Kong to the highest close since November 2007 after parent New World Development Ltd. offered to take the company private for HK$21.5 billion ($2.77 billion).

Changjiang Securities Co.added 0.4 percent to reverse a loss of as much as 2.3 percent in mainland trading after reports the chairman of the mid-sized brokerage is under investigation by the Communist Party. Yang Zezhu, who’s in his early 60s, is suspected of violations of discipline for “personal reasons,” the company told Shenzhen’s stock exchange in a statement on Wednesday.

The case adds to investigations over the past year that have entangled finance industry figures including securities regulators and senior executives at Citic Securities Co., the nation’s biggest brokerage.

— With assistance by Shidong Zhang

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