Beijing waded in to prop up China’s stock and currency markets yesterday, helping to temper losses by calming fears over the looming expiration of a share-sale ban and intervening to boost the renminbi.
Some traders and analysts said that the “national team” of state-owned financial institutions had also resumed buying shares, despite the securities regulator’s pledge in November to halt regular purchases.
The blue-chip CSI 300 index closed 0.3 per cent higher after its 7 per cent fall on Monday triggered a market-wide trading halt under a new “circuit breaker” mechanism intended to interrupt panic selling. But the broader Shanghai Composite index fell 0.3 per cent, while the Shenzhen Composite lost 1.9 per cent, adding to its 8.2 per cent tumble on Monday.
“The money that came in at the bottom today definitely isn’t normal money,” said Yang Hai, analyst at Kaiyuan Securities in Xi’an, who added that the recent volatility was mainly caused by “irrational panic”.
Authorities are walking a fine line as they attempt to prevent market disorder without simply postponing an inevitable correction.
The contrast between blue-chips and the broader market suggests the renewed presence of the “national team”, which has focused its buying on state-owned banks and industrial conglomerates. Despite yesterday’s modest recovery, analysts say the Chinese stock market remains on a shaky footing.
“The moves seen in Chinese stock markets are quite concerning. Many market internals point to a likely renewed sell-off and a revisit of the late-August lows,” wrote Angus Nicholson, analyst at IG, a Melbourne-based spread betting platform.
In an effort to calm nerves, the securities regulator said in a statement before trading began that it may extend a lock-up period for investors holding more than 5 per cent of a listed stock. The selling ban — imposed in July amid the devastating equity rout that wiped 45 per cent off the main index at one point — is due to expire on Friday.
In a further bid to douse jitters, the People’s Bank of China injected Rmb130bn ($19.9bn) into the banking system yesterday through regularly scheduled open market operations, the biggest one-day cash infusion since late September.
The central bank traditionally provides extra cash in anticipation of elevated cash demand around the October 1 national holiday, but no such seasonal factors are present this week.
In the foreign exchange market, traders saw signs that the PBoC was selling dollars from its foreign exchange reserves to support the renminbi. The renminbi was 0.2 per cent stronger in late trade yesterday afternoon following a 0.6 per cent fall on Monday, the currency’s third-largest single-day fall on record.
But the spread between onshore and offshore renminbi widened to its highest level on record, at 12 basis points, a sign that offshore investors were unconvinced by the currency’s onshore rally.