China stock rally fading as officials pare back support measures

An investor reacting in front of screens showing stock market movements at a brokerage house in Shanghai on Sept 1.
An investor reacting in front of screens showing stock market movements at a brokerage house in Shanghai on Sept 1.PHOTO: AFP

SHANGHAI (BLOOMBERG) - The rebound in Chinese stocks is losing its vigour as slumping volatility and the return of individual investors allow the government to reduce rescue measures introduced to end a US$5 trillion rout.

The Shanghai Composite Index has moved sideways in the past two weeks as authorities announced the resumption of initial public offerings, scrapped a rule requiring brokerages to hold net long positions and limited leveraged bets. The gauge had rebounded 24 per cent from its August low through Monday, after tumbling 43 per cent from its June peak. The index added 0.2 per cent to 3,621.90 at the 11:30 am break on Wednesday (Nov 25) on volumes 24 per cent below the 30-day avg for this time of day.

"The market has basically stabilized and we are not likely to see very wild swings as what happened during the stocks rout," said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management, who's keeping his stock allocation unchanged at 80 per cent. "We'll see more market functions go back to normal in the future."

Volatility has fallen to an eight-month low, while individual investors borrowed money from brokerages to buy stocks as a sense of normalcy returned to the market after months of turmoil. The government is seeking to restrain speculative activity - seen in a surge in margin debt - without undermining confidence among the nation's army of investors. The resumption of IPOs will also allow companies to tap into an important source of financing as they seek to cut debt levels from near record highs.

In a market where daily fluctuations exceeding 3 per cent were once the norm during a mid-year rout, this week's moves of less than 1 per cent in the Shanghai index have barely registered on price charts. The gauge's 10-day historical volatility is at a fifth of the August peak.

The CSI 300 Index slipped 0.1 per cent on Wednesday. Hong Kong's Hang Seng China Enterprises Index and the Hang Seng Index both lost 0.5 per cent.

A gauge of material producers in the CSI 300 rose 0.6 per cent, the biggest gain among 10 industry groups. Zhongjin Gold Corp. advanced 3.1 per cent, while Shandong Gold Mining Co. surged 4 per cent. Bullion held the first increase in three days on rising geopolitical tensions after Turkey said it downed a Russian fighter jet, spurring demand for haven assets.

Citic Securities, the biggest-listed Chinese brokerage, slipped 1.7 per cent. The Securities Association of China said it's investigating the company for over-reporting equity-swap data by 1.06 trillion yuan (S$233.4 billion) between April and September.