Share prices up, but worries persist
Print Edition
CHINESE stocks rose strongly for a second day yesterday, buoyed by a barrage of government support measures, but worries persist about the long-term impact that four weeks of market turmoil may have on the world’s second-largest economy.
Over the past two weeks Chinese authorities have cut interest rates, suspended initial public offerings, relaxed margin lending and collateral rules and enlisted brokerages to buy stocks, backed by cash from the central bank.
Some analysts predict further moves to come from the People’s Bank of China, which often makes policy announcements over the weekend, such as another rate cut or relaxation of the amount of cash banks must hold as reserves.
The frantic efforts to stem a more than 30 percent market slide finally began to gain traction on Thursday, when shares rose around 6 percent after the securities regulator banned shareholders with large stakes in listed firms from selling.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose another 5.4 percent yesterday, while the Shanghai Composite Index closed up 4.5 percent.
“Chinese investors move in herds,” said Samuel Chien, a partner of Shanghai-based hedge fund manager BoomTrend Investment Management Co. “After panic selling drove the market down to the extreme, prices are now starting to move in the other direction.”
At the depths of the slump, shares had fallen by close to a third from their mid-June peak.
In the first sign that market losses could feed through into depressed spending in the broader economy, China’s automakers association yesterday more than halved its 2015 forecast for vehicle sales growth to 3 percent, from 7 percent.
Analysts at Bank of America Merrill Lynch expected the market turmoil’s ripple effect to corporate earnings. “We expect this will likely hurt consumption down the road,” they said. “More critical is a potential distortion to credit flows due to the impairment to financial institutions’ balance sheets.”
Other economists said the tumult was unlikely to have a major impact on consumption.
Julian Evans-Pritchard at Capital Economics in Singapore said only a relatively small, wealthy portion of the population owned shares. “Indeed, given that the stock market didn’t provide any noticeable boost to spending on the way up, there is no reason to expect it to be a drag on the way down,” he said.
Around 1,300 of China’s listed companies — nearly half the market — remain suspended after a scramble by firms earlier in the week to have trading in their stock halted. About 60 companies resumed trading yesterday.
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