SHANGHAI • Shares bounced back by more than 3 per cent yesterday as Beijing's latest efforts to prop up values restored a measure of stability to China's unruly stock market.
But waning interest in equities among China's 90 million retail investors underscores the challenge of supporting a market where individuals account for more than 80 per cent of trading.
After a dramatic plunge of more than 8 per cent in Chinese stocks on Monday, China's securities regulator announced probes into share "dumping" and pledged to buy stocks to calm the market, while the central bank hinted at more policy easing.
That followed moves in recent weeks in which the authorities temporarily banned shareholders with large stakes from exiting their positions and issued a string of warnings against short-selling, or betting on falls in its domestic "A-share" market.
"The possibility for A-shares to rebound in the following month is quite big, given liquidity is rich in the market now and short-selling ability has been largely curbed," said Mr Zhang Qi, an analyst at Haitong Securities in Shanghai.
The Shanghai Composite Index broke a three-day slide to close up 3.5 per cent yesterday and the CSI300 index of the largest listed companies in Shanghai and Shenzhen jumped 3.1 per cent.
This week's turbulence shattered three weeks of relative calm for Chinese equities, secured through heavy government intervention to arrest a precipitous sell-off late last month and early this month that wiped as much as US$4 trillion (S$5.5 trillion) off share values. The renewed volatility has raised questions about how Beijing can extricate itself from the raft of support measures it has implemented for the stock market.
Some foreign investors say the heavy-handed state intervention has set back the market liberalisation plans at the centre of China's economic reform agenda.
"Some of the things they've done have been, to a degree, irrational," said Mr Sat Duhra, fund manager at Henderson Global Investors. "It's important that if China does want to be seen as a credible destination for foreign capital, then some of these things have to be more measured and thought-out."
The government's efforts to rekindle investor enthusiasm are also gaining little traction as margin traders cash out and new equity-account openings tumble.
Speculators reduced bets using borrowed money to the lowest level in four months on Tuesday, while new stock investors totalled 391,500 in the week ended July 24, a 26 per cent decline from the previous week, according to data from China Securities Depository and Clearing Corp's website.
"Investors are becoming more cautious and unwilling to take leverage," said Mr Yan Liu, a trader at Guosen Securities in Shenzhen.