Beijing's emergency moves bring some relief to stocks

Shanghai

CHINESE stocks rose on Monday, as an unprecedented series of support measures unleashed by Beijing brought some relief to a market whose headlong slide over the past three weeks had raised fears about the stability of the world's second-biggest economy.

In weekend policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China's state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed up 2.9 per cent, while the Shanghai Composite Index gained 2.4 per cent. That represented a significant pullback, however, from an initial burst of euphoria that pushed both indexes up around 8 per cent when trading began, raising questions about whether the rebound can be sustained.

Oliver Barron, China policy research analyst at NSBO, said it wasn't just faith in the markets at stake after investors had ignored official measures to prop up equities as indexes slid around 12 per cent last week.

"After the market continued to fall despite myriad support measures, the government reached peak panic mode and must have worried that investors would not only lose confidence in the markets, but in the government itself," he said.

The rapid decline of China's stock market, which by the end of last week had fallen around 30 per cent from a mid-June peak, had become a major headache for the government.

In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets. Recent falls in commodity markets, which are sensitive to expectations of Chinese demand, underline the broader fears among global investors about the strength of the economy.

Shanghai copper posted its steepest daily drop in five months on Monday, Chinese steel prices are at their lowest level since the depths of the global financial crisis and iron ore has fallen 17 per cent since mid-June.

Monday's stock market gains were focused on blue chips, particularly the big banks, with the likes of Bank of China, Agricultural Bank of China and ICBC all surging 10 per cent. In contrast the ChiNext growth board, with some of the giddiest small-cap valuations, fell 4.5 per cent. "Whether the blue chips will calm the small caps, or the small caps will continue to unsettle the rest of the market remains to be seen," wrote Hong Hao at Bocom International. REUTERS