China shares rebound on talk of policy statement

June 6, 2007
China shares rebound on talk of policy statement
Stocks up 2.6% with claims of impending moves to revive investor confidence
CALMING EFFECT: Most Asian bourses pared losses as China's recovery eased concerns that Monday's plunge may prompt a regional correction. -- REUTERS SHANGHAI - CHINA'S main stock index yesterday plunged more than 7 per cent before rebounding to close 2.6 per cent higher on rumours that the government would soon issue a policy statement designed to restore investor confidence. Most Asian share markets pared earlier losses after China stocks reversed their steep fall, easing concerns that the slump might prompt a correction across the region. Hong Kong's Hang Seng Index, which tracked China stocks' roller- coaster ride, closed up 0.54 per cent at 20,842.15 as some investors continued to shift money into the territory from the mainland. Japan's Nikkei took the turmoil in Chinese markets in its stride, closing up 0.5 per cent and above the 18,000 level for the first time since February, helped by stronger energy stocks. South Korea's Kospi carved out another record closing high with a gain of 0.3 per cent. In China, as prices swung wildly and rumours were abound, some fund managers said the five-day slide that pushed the index down by as much as 21 per cent and erased US$490 billion (S$750 billion) of value might be ending at one stage. Many local and foreign mutual funds, some of which were more than 90 per cent invested in Chinese stocks early this year, are believed to be only around 50 per cent invested now. Stocks could rise further if those funds decide the market has bottomed out. 'A lot of our fund managers are expecting it to hit the bottom today...or maybe later this week,' said Fortune SGAM Fund Management deputy chief investment officer Gabriel Gondard yesterday. But others fear panic selling by millions of Chinese individual investors, who now face losses of 30 per cent or more, could still push the market much lower. 'I have no words for this market - it's out of its mind,' said Xiangcai Securities analyst Wu Nan. 'Any rebound will just bring another sell-off, as confidence has gone.' The Shanghai Composite Index dropped by as much as 7.25 per cent yesterday morning before jumping in the afternoon to close 2.63 per cent higher at 3,767.101 points, less than two points off its intra-day high. Turnover in Shanghai A shares was an active 175.1 billion yuan (S$35.02 billion). The market's slide was triggered by the government's announcement last Wednesday that it was raising the stock trading tax to cool a bull run that had nearly quadrupled the index over the past 18 months. Much will therefore depend on Beijing's actions in the coming days. It is expected to intervene, if necessary, to prevent a collapse in stocks that could hurt the economy. Rumours spread yesterday afternoon that officials from the securities regulator, the finance ministry and other agencies planned to meet to discuss how to stabilise stocks. The government may issue a statement saying it will not introduce a capital gains tax for three years, and promising other market- friendly policies, the rumours said. Other analysts, however, noted attempts by the authorities to revive confidence at the start of the week, such as positive editorials in state-run newspapers about the market's trend, had failed. That suggests to some that individual investors will continue to sell into any rally, weighing on the bourse for months and conceivably pushing the index down to as far as 3,000 points in the coming weeks. A drop to 3,000 points would represent a 30 per cent pullback from the market's high, which according to technical analysis is a common retracement in the context of a long-term uptrend. Such a drop would still leave the index up 10 per cent from the start of this year, and many institutional investors would still be sitting on sizeable profits. But many small investors would be wiped out. REUTERS, AGENCE FRANCE-PRESSE