(Bloomberg) — A rally in Chinese stocks extended into the eighth session as a growing list of support measures helped ease bearish sentiment.
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After a choppy start, the benchmark CSI 300 Index ended Thursday 0.9% higher, capping its longest run of gains since July 2020. In Hong Kong, the Hang Seng China Enterprises Index jumped nearly 2%.
Beijing has deployed a wider range of policy levers including restrictions on equity net sales, underscoring authorities’ desperation to revive the $8.7 trillion stock market. While this month’s rebound suggests the steps — which also include stock purchases by state funds and a clampdown on quant trading — have put a floor under the rout, many still see it as a technical upswing that may wind down if supports taper.
“We don’t rule out the possibility that the latest restrictions could contribute somewhat to a technical rebound in the Greater China market in the near-term,” said Homin Lee, senior macro strategist at Lombard Odier. “But the market’s long-term trajectory will be driven by fundamentals, not technical tweaks of this nature.”
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Efforts to boost market confidence have ratcheted up since a new chief took control of the China Securities Regulatory Commission earlier this month. The regulator has banned major institutional investors from reducing equity holdings at the open and close of each trading day, Bloomberg reported Wednesday.
Foreign funds added 3.7 billion yuan ($515 million) of onshore shares through the trading links with Hong Kong on Thursday, boosting holdings again after scooping up more than 13 billion yuan in the previous session.
“In the short-term, these moves should at least stop the downward spiral of the market,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Machine-led, large and rapid transactions should be curtailed so we don’t cause an unexpected crash.”
In another positive development, Beijing has also started drafting a law to promote the development of the private sector economy. The law will focus on the “core concerns” of private companies, including protecting their property rights and guaranteeing the interests of entrepreneurs, state media reported.
The equity rout a few weeks ago was exacerbated by quant funds stampeding to exit position, according to an analysis by Man Group fund manager Ziang Fang, who said in a note this week that the unwinding of these positions was so massive that it spurred small-cap stocks to underperform by a historic margin.
Beijing’s tightened grip on trading activity, however, risks upending popular strategies used by hedge funds and other institutional investors, and may further alienate foreign funds who have already left the market in droves.
Rising short interest in China and Hong Kong equities amid this month’s market uptrend implies that investors’ sentiment on average is still cautious, Morgan Stanley strategists including Gilbert Wong and Laura Wang wrote in a note, citing IHS Markit data.
“People have had this hazy sense of anticipation and optimism ever since the authorities demonstrated their resolve to change the state of the market with the CSRC head change,” said Liu Xiaodong, fund manager at Shanghai Power Asset Management Co. The new chief “has so far proven true to his word with a heavy hand to rectify some of the long standing, fundamental issues that have plagued the market.”
–With assistance from April Ma.
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