China's Stocks Lurch Lower Again as Rebound Proves Short-Lived

(Bloomberg) -- The roller-coaster ride for Chinese stock investors continued Tuesday, as the benchmark gauge slumped to end its biggest two-day advance in three years and equity markets tumbled worldwide.

The Shanghai Composite Index’s losses accelerated in the afternoon, and it closed down 2.3 percent. Almost six stocks on the gauge fell for every one that rose, a day after one of Shanghai’s broadest rallies on record. The recent price swings have made the index the world’s most volatile. Equities in Hong Kong also slid, while the yuan was little changed.

“The market is still worried about China’s economy,” said Liang Jinxin, a Shanghai-based strategist with Tianfeng Securities Co. “Other factors such as the yuan, the trade war, as well as the decline in the U.S. market also add pressure. Yesterday’s gain was mainly driven by brokerage stocks, which shows investors still don’t know what to buy.”

China's Stocks Lurch Lower Again as Rebound Proves Short-Lived

The renewed declines came after a raft of new measures aimed at easing the funding strains of private companies. The State Council said late Monday it will support bond financing by private firms, adding that the People’s Bank of China will provide funding to facilitate this. Separately, 11 Chinese securities firms agreed to invest the equivalent of $3 billion to set up asset-management programs aimed at plugging the share-pledge hole.

“Stocks in the past two days were like a patient, just coming out of the ICU and going straight to the nightclub -- the symptoms may have temporarily gone away, but it is far from cured, and it’s only a matter of time before medicine starts to wear off,” said Chen Jihao, partner at Gaoxi Hedge Fund in Beijing. “I still abide by the belief that there will be no bull market in a deleveraging process.”

Even after its near 7 percent Friday-Monday rally, the Shanghai index is still down more than 20 percent this year, one of the worst performers in the world. The trade dispute with the U.S. has been a major concern for investors, as have signs of softer Chinese growth, with the latest data showing the economy expanded at the slowest pace since 2009 in the third quarter.

Top officials including President Xi Jinping have in recent days issued statements backing the market, from pledging “unwavering” support for non-state firms to vowing to help companies reduce share-pledge risks, which have been a key driver of the market’s decline. Tuesday’s moves suggest their impact could be fading, as predicted by Bank of America Merrill Lynch’s head of China equity strategy David Cui in an interview with Bloomberg.

Hong Kong’s Hang Seng Index snapped a two-day rally too, falling 3.1 percent, its worst loss since Oct. 11. Tencent Holdings Ltd. was the biggest drag on the benchmark as it slid 4.6 percent, resuming a slump that has now seen the Chinese technology giant lose $239 billion in market value in just nine months.

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