Share markets across the region were awash in red ink at the opening bell yesterday, but North Asia rebounded strongly after Beijing's latest move to stem a stock rout that has erased US$3.9 trillion (S$5.3 trillion) in market value to date.
While the sharp uptick brought some relief, market observers doubt the rally has legs, given that more than half of listed companies in Shanghai and Shenzhen are still suspended. This suggests there may be considerable selling interest once the trading halts are lifted.
"There were reports that the real reason for the trading halts was that many controlling shareholders have used their equity as collateral for loans," IG market strategist Bernard Aw said. "This means they may be forced to liquidate their stocks when the share price has dropped far enough. The implication is that another massive sell-off may be triggered."
Short-sellers are also circling as more margin unwinding is likely following curbs on margin trading.
Fuelling yesterday's rebound was China's announcement that major shareholders, those holding 5 per cent or more, corporate executives and directors cannot sell stock in their listed companies for six months. China is also investigating short-selling and threatening to punish market manipulators.
The move energised markets: Hong Kong rebounded 3.73 per cent, Shanghai jumped 5.76 per cent, Shenzhen rose 3.76 per cent while Japan gained 0.6 per cent. But the Straits Times Index dipped 0.54 per cent, or 17.59 points, to 3,267.40 as banking counters fell on talk that interest rate hikes may be delayed until next year.
Some investors fear that China's market turmoil is a bigger destabilising force than the Greek debt crisis because US banks, according to Royal Bank of Scotland economists, have nearly 10 times as much exposure to China than to Greece. They also note that if Chinese private consumption is hit, that could weigh on global growth as well as the earnings of companies linked to Chinese growth.