Only six stocks fell on Friday, while shares of 1,452 listed companies rose, majority hitting the upward limit of 10 percent.
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Before Thursday’s rebound, the market had fallen more than 30 per cent after a spectacular bull run peaked on June 12, raising fears for the wider economy. American investors and the 401(k) plans of ordinary folks can not invest directly in what had been a sizzling market in China.
Indeed, the Obama administration is anxious the stock market crash could get in the way of Beijing’s economic reform agenda.
There have been signs of overheating in China for a while. In hindsight, though, a reversal was not unexpected given the astonishing run-up in Chinese share prices.
To be sure, China’s economic growth is not seen as highly correlated with the local stock performance-so far. Though the CSF, the government’s margin-financing provider reassured markets that margin calls were manageable and the CSRC urged calm, investors remained jumpy.
Beijing has moved to curb new listings and extracted promises from fund managers and brokerages to buy at least US$19 billion in stocks to provide support for blue chip shares. AFP/Getty Images A stock investor reacts in front of a screen showing stock market movements, in a brokerage house in Shanghai.
China is also revealing to global investors that its markets aren’t fully developed, analysts said. More than 7 million new accounts were opened last month.
“However, in the face of the Greek tragedy and China market turbulence, investors still have plenty to worry about”. Controlling shareholders and board members have been barred from reducing share holdings via the secondary market for six months.
It’s actually made things worse. “There is no evidence that the surge in the stock market since 2014 had a positive impact on (China’s) household consumption, so it seems unlikely that the partial reversal of this boom will have a negative impact”.
The index closed up 5.8 per cent on Thursday, the first big jump after almost a month of falling prices.
As of today, around 1,400 of the 2,800 companies traded in the country have decided to pull their shares to avoid taking damage.
ENERGY: Benchmark USA crude rose 90 cents to $52.55 a barrel in electronic trading on the New York Mercantile Exchange.
“Movements in the Chinese stock market don’t necessarily correlate to China’s economy”, said analyst Jasper Lawler at CMC Markets in Singapore. Nonetheless, it’s likely to be a while before it’s once again smooth sailing in Chinese markets. China has allowed its currency to appreciate against the USA dollar, rather than devalue its currency. Look at the other side, if the labour cost is increasing in China, it will force the companies to desist from producing low-value products. The largest target-date mutual funds built for people hoping to retire in 2030, for example, generally have less than 3 percent of their portfolios in Chinese stocks. But as the Financial Times explains, Chinese authorities have gradually relaxed these requirements over the past five years.
Even though USA investors have limited exposure to China’s market, there is still money there.
According to the BBC, there are several possible reasons for Chinese stock index’ continuing downtrend.
For my money, this rebound won’t last for long. “My sense is that they’ve been expecting something ugly from this retail frenzy that has been driving Chinese markets”.
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Golub said growth in China has slowed and that’s been clear in freight shipments and electricity use. Regarding this question, it’s frankly too soon to tell.
