SHANGHAI/BEIJING • Stock markets in China took a wild ride yesterday, tumbling and soaring in a session that made little sense other than to highlight that investors have almost no faith in a month-long government effort to stabilise them.
Shares on the Shanghai and Shenzhen stock exchanges fell 3 per cent in morning trading, taking their losses to more than 8 per cent since investors stampeded without warning on Tuesday.
But state-backed buyers later rushed in, enabling stocks to finish the day up 1.6 per cent.
It is a pattern that has been repeated several times since Beijing's "national team", a coalition of state-backed financial institutions and regulators, went into action early last month with instructions to halt a crash in share prices.
We advise strapping in for a bumpy ride.
MR TIM CONDON, head of Asia research for ING Bank in Singapore
Investors say China's stock markets - which were never for the faint of heart - have become dysfunctional since the Beijing government's massive and unprecedented rescue effort.
Prices move sharply on speculation about the national team's activities as investors focus on making quick trading profits by pre-empting its next move.
Late in the afternoon yesterday, a slew of companies announced that state funds had bought stakes in them, which investors took as a sign that the government was signalling its continued support for the market.
Long-term investors are staying well on the sidelines, moving their cash into bonds and the money market, as roller-coaster markets and a gloomy stream of economic news heighten their anxiety over the world's second-largest economy.
"We advise strapping in for a bumpy ride," said Mr Tim Condon, head of Asia research for ING Bank in Singapore.
The Commerce Ministry added to that anxiety yesterday, saying that exports could continue falling in coming months, after an 8.3 per cent plunge in July, their biggest drop in four months.
The Chinese economy is already under threat of deflation and policymakers are struggling to revive bricks-and-mortar investment.
Beijing's official growth target is 7 per cent for this year, but some economists estimate that current levels are closer to half that.
The Shanghai market closed up 1.2 per cent and Shenzhen jumped 2.2 per cent.
The benchmark CSI300 index, comprising blue-chip stocks from both markets, rose 1.6 per cent.
The rebound followed news that the People's Bank of China would be offering more medium-term funds to banks, in addition to a 120 billion yuan (S$26.3 billion) injection of funds into money markets on Tuesday.
The Chinese central bank confirmed later in the day that it lent 110 billion yuan of six-month cash to help maintain sufficient liquidity in the market.
Sources familiar with the medium-term funding plan said this would help offset the drain on liquidity caused by China's unexpected devaluation of the yuan last week. The prospect of further weakening has prompted investors to swap yuan into US dollars.