Shenzhen Stock Exchange at Shenzhen, China (Photographer: Lucas Schifres/Bloomberg News)

Chinese Stocks Rally Most Since 2016 as State Steps Up Support

(Bloomberg) -- Chinese stocks jumped the most since March 2016 after top officials moved to shore up the economy and offer support to the struggling private sector.

The Shanghai Composite Index surged 4.1 percent on Monday and extending Friday’s 2.6 percent gain, after sinking to a four-year low last week. A measure of 10-day volatility also climbed to the highest since March 2016.

President Xi Jinping vowed “unwavering” support for non-state firms over the weekend, the country’s stock exchanges committed to help manage share-pledge risks, and the government released a plan to cut personal income taxes. That follows a rare coordinated effort from top financial officials on Friday to support what’s been the world’s worst performing equity market.

"This rebound is very comforting, a warm current in winter’s frigid waters," said Weining Chen, a fund manager at Miyuan Investments in Beijing. "The remarks and polices since Friday are seen as an ample dose for now. But there are still expectations that the authorities will not stop here because the economic figures are still not looking optimistic."

Chinese Stocks Rally Most Since 2016 as State Steps Up Support

At least 20 brokerages, which are among the biggest lenders to private firms trading on the mainland, surged by the daily 10 percent limit. Moves by authorities to reduce stock-pledge risks should stabilize the equity market and help lift valuations for Chinese brokers, according to Goldman Sachs Group Inc.

Consumer-related shares climbed amid expectations personal income tax cuts will give China’s citizens more spending power. Liquor maker Luzhou Laojiao Co. rallied 7 percent.

Golden Window

"There is some sincerity in the tax deduction policies and the news on relief funds over the weekend,” said He Qi, fund manager at Huatai Pinebridge Fund Management Co. in Shanghai. The policies “may serve the purpose of providing a golden window of opportunity for a rebound before the end of the month.”

China’s stock market tumbled at the fastest pace worldwide this year as trade tensions, weakening economic growth and a wave of forced selling rattled investors. Losses accelerated this month as traders zeroed in on the risks associated with $600 billion of Chinese shares that have been pledged as collateral for loans.

The Shanghai Composite Index’s 10-day volatility surged above 45 percent Monday, the highest level among benchmark equity gauges in 47 emerging and developed markets, up from 17th-highest at the start of the year. The wild trading evokes the gut-churning price swings that followed the bursting of the equity bubble in mid-2015.

Chinese Stocks Rally Most Since 2016 as State Steps Up Support

Hong Kong shares also climbed, with the Hang Seng Index rising 2.3 percent. Sino Biopharmaceutical Ltd. and Geely Automobile Holdings Ltd. were the top gainers with gains of at least 7 percent.

The yuan fell 0.1 percent to 6.9361 per dollar. U.S. Treasury Secretary Steven Mnuchin said he’s open to changing how the U.S. determines which nations are gaming their currencies, after refraining to labeling China a currency manipulator in a semi-annual report last week.

The 10-year government bond yield rose 3 basis points to 3.6 percent, the biggest increase since Aug. 17.

To contact Bloomberg News staff for this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net

©2018 Bloomberg L.P.

With assistance from Editorial Board