China's state media move to calm investors after stocks tumble 13% last week

Chinese stock investors react as they check the prices on the board at a securities firm in Qingdao, in China's Shandong province on June 19, 2015.
Chinese stock investors react as they check the prices on the board at a securities firm in Qingdao, in China's Shandong province on June 19, 2015. PHOTO: AFP

SHANGHAI (REUTERS) - Official state-run financial newspapers in China published front-page commentaries on Tuesday arguing that the logic supporting the bull market has not changed, in apparent attempts to soothe sentiment after Chinese stocks dropped over 13 per cent last week.

The flood of editorials highlights Beijing's nervousness about the current fragile state of Chinese stock markets, which have been buffeted by frequent bouts of extreme volatility in recent months.

Unlike in developed economies, the majority of transactions on Chinese bourses are conducted by retail investors who are more prone to irrational exuberance or panic.

Given relatively high levels of leverage used in trade this year, analysts warn that a sudden shift in sentiment could replicate or even exceed the disastrous stock market collapse in 2009.

The Securities Times said in an editorial that investors "needn't panic" in the face of recent corrections, as long as the fundamental support for the market's uptrend - reform and innovation - has not disappeared.

The view was echoed by a front-page commentary in the Shanghai Securities News, which said that a moderate pull-back would help create a "slow and long" bull market.

And the Securities Daily said that although there's froth in some areas, many stocks are still worth buying into by value investors.

Last week's panic sell-off - only interrupted by a feeble rebound on Wednesday - was triggered by fresh government moves to tighten margin financing, and worsened by a tidal wave of initial public offerings that sapped liquidity.