China: Stocks rise, paring world's worst quarterly performance

[SHANGHAI] China's stocks rose, paring the biggest quarterly loss since 2008, as the government struggled to halt a US$5 trillion rout and the world's second-largest economy showed signs of a sharper slowdown.

The Shanghai Composite Index has tumbled 29 per cent since the end of June, the biggest loss among benchmark global gauges. The measure rose 0.6 per cent to 3,056.70 at 11:03 a.m. local time on turnover 59 per cent below the 30-day average for this time of day. China's financial markets will be shut from Thursday for weeklong National Day holidays.

The value of shares traded on mainland bourses have plunged 87 per cent from the June record as the equity boom turned to bust and the government took unprecedented measures to shore up stocks - including banning major shareholders from selling and curbing index futures trading. Leveraged wagers, which helped fuel gains in the first half of the year, have tumbled by 60 percent since the peak. President Xi Jinping said last week equities have entered a phase of "self recovery," signaling policy makers will pare back support as volatility subsides.

Hong Kong's Hang Seng China Enterprises Index rose 1.6 per cent on Wednesday, paring its losses this quarter to 28 per cent. The Hang Seng Index added 1.1 per cent, trimming its three-month decline to 21 per cent.

Stock Valuations Gauges of technology, material and energy companies in the CSI 300 Index have slumped at least 34 per cent this quarter for the worst performances among 10 industry groups. Hundsun Technologies, which has a financial investment platform known as HOMS that allows trust firms and online lenders to provide leveraged trading facilities to clients, plunged 61 per cent. China Coal Energy tumbled 48 per cent, while Yunnan Copper slumped 59 per cent.

Chinese shares remain expensive relative to global stocks after the rout. Equities on mainland bourses trade at a median 49 times reported earnings, the highest among the world's 10 largest markets and almost three times the multiple of 18 for the Standard & Poor's 500 Index. The Shanghai index, where low- priced banks have some of the biggest weightings, is valued at 15.1.

The statistics bureau is scheduled to release an official manufacturing index for September on Thursday. The reading will probably be 49.7, unchanged from a month earlier, according to the median estimate of economists surveyed by Bloomberg. A reading below 50 indicates contraction. Recent data have been week, with a preliminary factory gauge falling to the lowest level since the global financial crisis and industrial profits slumping the most in at least four years.

Investors Flee While HSBC Holdings Plc said last week further losses by Chinese shares are limited after leveraged traders cut more than $200 billion of positions, there are few signs individual investors - who account for more than 80 of trading on Chinese shares - are returning to stocks.

The number of new investors has tumbled more than 80 percent from the peak in late May. The richest traders have been quickest to bail out of the market. The number of accounts holding shares worth more than 10 million yuan (S$2.24 million) almost halved in the past three months, the biggest decline among four categories of investor wealth tracked by the nation's clearing agency.

Weaker Growth A string of weak economic data is increasing concern about the outlook for corporate earnings, while Xi's plan to overhaul the country's $16 trillion state-run sector unveiled this month failed to reignite investor interest. Barclays Plc cut its forecast for the nation's growth next year to 6 per cent from 6.6 per cent.

Another concern for investors is what happens when the state starts to step back and how long curbs on trading will remain. China's securities regulator said Aug 14 that the government agency tasked with supporting share prices will reduce purchases as volatility falls. Restrictions on trading futures and a probe into "malicious" short-selling are making it almost impossible for investors to hedge positions. State funds have spent US$246 billion purchasing equities in the three months through August, according to Goldman Sachs Group Inc.

Central bank Governor Zhou Xiaochuan said this month intervention in the equity market helped reduce the risk of the rout spilling over into the broader economy, and bring closer an end to the plunge. While the Shanghai Composite is only 3.8 per cent above since its Aug 26 low, declines of more than 5 per cent - which occurred almost daily during the depths of the rout - have been absent in the past month.

Margin traders reduced holdings of shares purchased with borrowed money for a fifth day on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling to a nine-month low of 573.4 billion yuan.

BLOOMBERG