China's Late Stock Rally Has All the Hallmarks of State Buying

(Bloomberg) -- Is China’s government propping up the stock market again?

It sure looked possible on Friday as the Shanghai Composite Index jumped as much as 2.7 percent. After a rare show of verbal support from the nation’s top financial officials failed to trigger sustained gains this morning, a sudden afternoon rally has raised the question of whether authorities are taking a more direct approach.

Large-cap financial and oil companies, rumored to be the favored buying targets of state-run funds, were the biggest contributors to Friday’s gains.

The authorities have a long history of stepping in to support equities, via the so-called national team of state funds. Events of national importance, or periods of extreme volatility, are typically times when the hand of the state is seen. Sharp spikes in afternoon trading are a hallmark of team China.

Until today, there had been little recent sign of direct intervention, even as shares tumbled at the fastest pace in the world. Instead the central government appeared to be pushing local authorities to help out specific companies in need of liquidity support, despite the growing clamor for more substantial aid.

Wheeling out the the national team would suggest traders may finally get some respite from the $3 trillion rout, and could put an end to margin calls. But such a move will only reinforce the notion that when things get bad, the government will be there to bail people out.

To contact the reporter on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net

To contact the editors responsible for this story: Sarah Wells at smcdonald23@bloomberg.net, Michael Patterson

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