(Updating to rewrite lead paragraph to say stock market rises, adds Shanghai, HK performance at the open on the next graph.)
China’s stock market, which has fallen nearly 30% from a June 12 peak, rallied at the open Monday after the government’s and the brokerages’ concerted and aggressive move to support sentiment and prop up shares.
The Shanghai Composite Index surged 7.8%, while the Hang Seng Index was up 1.3%, according to MarketWatch.
Analysts interviewed by NexChange before the markets in China and Hong Kong opened Monday morning, said volatility, though, will continue as the overall market sentiment remains fragile because of Greece, which thumbed down the measures required by creditors for a debt relief in a referendum Sunday.
“Greece is the wild card,” said Francis Lun, CEO at Geo Securities. “But China’s support for the stock market will probably restore investor confidence. There could be a rise today in the A-share market and that will provide a support for Hong Kong.”
The Shanghai Composite Index will probably rise by around 5% and the Hang Seng Index by around 2%, as investors in Hong Kong will also be concerned about the developments overseas including the debt situation in Greece, said Lun.
China over the weekend announced that IPOs will be halted, while fund managers and brokerages said they would buy 120 billion yuan ($19.3 billion) of shares to rescue the market, which has been volatile and on a downward spiral since the middle of last month, according to media reports. China’s state-backed margin finance company will support their stock purchases, while the PBOC pledged to provide liquidity.
“There will be a rebound in the A-share market today, but it will be difficult to say by how much it will rise,” said Ben Kwong, COO at KGI Asia. “One thing is sure, the market will continue to be very volatile even after the intensified efforts to support the market.”
Asked if he expects the rebound in China to last, Kwong said it will all depend on the retail investors, who account for most of the transactions in the country’s equities market.
“There are overseas factors to contend with like Greece. In China, investors are still skeptical about the effectiveness of the government’s intervention. It will all depend if investors are convinced about the government’s determination to restore market confidence,” said Kwong.
Lun, meanwhile, is more optimistic:
“As long as the government’s support will continue, then the rebound will probably last more than a day,” said Lun.
Last week, China has taken major steps to boost the market including a 25bps cut on the central bank’s key rates, a 50bps reduction in the banks’s reserve requirement ratio, announcement of a plan to allow the pension fund to invest in stocks for the first time ever, infusion of funds into ETFs tracking the Shanghai index by investment-backed institutions, and a string of other measures. Unfortunately, they all failed to arrest the downturn in the market.
It will be exciting to see if the most recent measures will finally arrest the decline in the share prices this week.
Photo credit: Aaron Goodman via Flickr