China: Stocks head for longest winning streak since May

[SHANGHAI] China's stocks headed for their longest stretch of gains in almost two months, amid speculation the government's market-support measures have tempered wild price swings as smaller companies extended a bull-market rally.

The Shanghai Composite Index advanced for a fourth day, climbing 0.9 per cent to 4,028.60 at 1.35pm and heading for the first close above 4,000 since July 1. The ChiNext small-caps gauge, dominated by technology and new economy stocks, rose 1.5 per cent, adding to gains of more than 20 per cent since the July low. A total of 543 companies were suspended on mainland exchanges Tuesday, or 19 per cent of all listings, down from 576 at the close on Monday.

The benchmark gauge has rebounded 14 per cent since July 8, following a month-long rout that wiped out almost US$4 trillion, as policy makers introduced a spate of measures to bolster equities. The Shanghai index on Monday posted the smallest price swings since the rout began.

"The 4,000 level is a key battlefield for bulls and bears," said Li Jingyuan, general manager of the securities investment department at Shanghai Zhaoyi Asset Management. "Once the psychological level is breached, investors will probably pile in again as they view that as a breakthrough of major resistance."

The CSI 300 Index gained 0.7 per cent. Hong Kong's Hang Seng China Enterprises Index added 1 per cent and the Hang Seng Index climbed 0.6 per cent.

WORST OVER

The Shanghai gauge's 10-day volatility has fallen to the lowest level in a month after the government introduced measures including banning large shareholders from selling stakes, ordering state-run institutions to buy equities and suspending new share sales. Last week, people familiar with the matter said China Securities Finance Corp, a state-backed agency that provides margin finance and liquidity to the market, has up to 3 trillion yuan (S$661.5 billion) to support stocks.

Trading volumes in the Shanghai index were 19 per cent below the 30-day average as price swings narrowed. The gauge traded within a range of 3 percentage points for a second day on Tuesday.

"Chinese stocks may pass their worst period and return to their normal volatility," Warut Siwasariyanon, the head of research at Asia Wealth Securities Co, said by phone in Bangkok. "But it's unlikely that there will be another major rally the same as we saw earlier this year."

FDI Data China's foreign direct investment rose 0.7 per cent in June, the commerce ministry said on Tuesday. That beat the median estimate of a 0.5 per cent gain in a Bloomberg survey.

Margin traders increased holdings of shares purchased with borrowed money for a second day on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 921.3 billion yuan.

Among ChiNext stocks, Rastar Group and Top Resource Conservation Engineering Co surged by the 10 per cent daily cap.

Jiangxi Copper Co, China's biggest producer of the metal, slipped 0.5 per cent. Zijin Mining Group Co, the nation's largest gold producer, lost 1.6 per cent.

The Bloomberg Commodity Index slid to its lowest close since June 2002 on Monday, and mining stocks drove equity losses around the world, with selling heaviest among emerging-market resource producers.

BLOOMBERG