China Stocks Rally After Benchmark Falls Under 2016 Closing Low

(Bloomberg) -- The Shanghai Composite Index rebounded after slipping below its lowest closing level of 2016, as state-backed funds were seen buying stocks to stabilize the market.

The Shanghai gauge closed up 1.1 percent at 2,698.47 after falling as much as 0.6 percent to 2,653.11. It was its biggest gain since Aug. 9 and first advance in six days. That came as the so-called national team bought blue-chip stocks, according to people familiar with the matter who declined to be named because the information wasn’t public. The benchmark’s closing low in 2016, when China was managing the fallout of a stock market crash and yuan devaluation, was 2,655.66.

China Stocks Rally After Benchmark Falls Under 2016 Closing Low

Other indexes on the mainland and in Hong Kong climbed Monday afternoon. The China Securities Journal reported that officials met with analysts to seek their views on markets, potentially providing a boost, according to Linus Yip, a strategist with First Shanghai Securities Ltd.

“The securities regulator is said to have held a closed-door meeting with analysts, that may have fueled expectations there’ll be some moves to stabilize the market,” Yip said.

Around $1.5 trillion has been wiped from the Shanghai Composite Index since it hit a more than two-year high in January. Investors have been spooked by factors ranging from Beijing’s deleveraging campaign and its impact on liquidity, to a heated trade dispute with the U.S., a weakening yuan and signs of a slowing economy. The Shanghai measure is among the world’s worst performers this year.

“Authorities certainly don’t want to see stocks slide further, valuations at current levels appear attractive, though it would be hard to revive sentiment on the market,” said Shen Zhengyang, Shanghai-based strategist with Northeast Securities Co. “The trade negotiations that are dragging on will continue to cloud the market outlook.”

Chinese equity gauges have fared poorly for most of 2018. The CSI 300 Index is down 26 percent from its January high and the ChiNext gauge of small caps and technology stocks has fallen 24 percent since the end of March.

“China’s economic policies and deleveraging over the past few years made small and private firms the biggest victims, so unless that policy orientation is changed to reinvigorate the economy, I don’t see any turnaround in stocks,” said Sun Jianbo, president of China Vision Capital Management in Beijing.

Turnover on mainland exchanges fell to 264.6 billion yuan ($39 billion) Monday, the lowest in six months.

Some of the day’s moves:

  • CSI 300 Index rises 1.2 percent, erasing 0.6 percent loss.
  • ChiNext adds 0.1 percent after falling as much as 2.1 percent.
  • Hang Seng Index up 1.4 percent in Hong Kong, most since Aug. 7.
  • Hang Seng China Enterprises Index rises 1.1 percent, also most in nearly two weeks.
  • Onshore yuan strengthens 0.52 percent to 6.8510 per dollar. Offshore yuan falls 0.08 percent to 6.8422.
  • Yield on 10-year government bonds drops one basis point to 3.65 percent.

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