(Bloomberg) — China’s stocks rose, halting the benchmark index’s steepest five-day rout since 1996. Industrial and health-care companies led gains.
The Shanghai Composite Index climbed 1.6 percent to 2,972.57 at the midday break, after sinking 23 percent since Aug. 19. Almost five stocks rose for each that fell on the gauge, while 18 percent of listed companies on mainland bourses were halted from trading. The Hang Seng Index advanced 2.5 percent from a two-year low.
A gauge of 50-day volatility on the Shanghai measure surged to its highest level since 1997 this week as the government pulled back from rescue measures to support the world’s second-largest stock market. The index tumbled 42 percent from its mid-June peak through Wednesday to erase more than $5 trillion of value as margin traders closed out bullish bets and concern deepened that valuations are unjustified by the weak economic outlook.
“We do see some interesting entry points,” said Catherine Yeung, a Hong Kong-based investment director for Fidelity Worldwide Investment. “Investors should expect further volatility.’
The Hang Seng China Enterprises Index in Hong Kong advanced 3.4 percent, gaining for the first time in 10 days. The CSI 300 Index added 2.1 percent. Trading volumes in Shanghai were 21 percent below the 30-day average for this time of day
China shouldn’t weaken stabilization measures for the stock market as normal trading hasn’t resumed, according to a front- page commentary published in the Securities Daily on Thursday.
Technical Bounce
Gauges of industrial and drug shares in the CSI 300 rose more than 2 percent for the steepest gains aming 10 industry groups. CRRC Corp. formed by a merger of rail companies, jumped 10 percent. Yunnan Baiyao Group Co. added 3.1 percent.
‘‘This is the technical bounce we said on Monday was likely over the coming days,” Lim Say Boon, chief investment officer at DBS Bank in Singapore, wrote in a report. “ But don’t get too happy about it — the fundamentals haven’t changed.”
Stocks on mainland bourses trade at a median 48 times reported earnings, according to data compiled by Bloomberg. That’s the most among the 10 largest markets and more than three times the 18 multiple for the Standard & Poor’s 500 Index.
Leveraged bets on Chinese stocks have increased to their highest level since July 8 versus the size of the market as prices fall faster than margin traders cut positions. While margin debt has fallen by 1.1 trillion yuan ($171 billion) from its June peak, the loans account for 3.6 percent of overall market capitalization on Aug. 25 from 3 percent two weeks ago.
Stocks failed to sustain gains on Wednesday after the central bank cut interest rates. The People’s Bank of China announced Tuesday it would reduce the one-year lending rate by 25 basis points to 4.6 percent and lower the required reserve ratio by 50 basis points for all banks.
Easier monetary policy can boost short-term confidence but can’t change the fundamentals of the stock market, the central bank-backed Financial News wrote in a commentary.
