Chinese shares soar after stimulus measures

Chinese stock markets continued their journey upwards today (July 10th), following yesterday's sharp rebound after three weeks of continued losses that wiped out £1.5 trillion.

Drastic government measures introduced this week to stop the slide have now started to have an impact.

The Shanghai Composite soared 5.1 per cent to 3,899.02 after ending the previous session 5.7 per cent higher. Hong Kong's Hang Seng was up 2.3 per cent to 24,958.88.

The China Securities Regulatory Commission said on Wednesday that it was banning investors holding more than five per cent of a company's shares from selling any of their holdings for the next six months, according to the Xinhua news agency.

Other measures introduced earlier include a ban on short-selling, a suspension of initial public offerings, and the injection by 21 brokerages of 128 billion yuan (£13 billion) into a stabilisation fund to support the market. About 57 mutual fund houses were also reported to have started buying equities using 2.16 billion yuan of their own money.

Analysts say this could backfire

Chinese authorities also cut interest rates for the fourth time since November and relaxed margin lending rules.

State authorities have even blamed this economic instability on calculated “foreign forces", with China's financial regulator saying it will investigate suspected market manipulation, and be looking into whether parties were mis-selling financial products.

However, many analysts believe that the market was autocorrecting. The Shanghai stock market has more than doubled over the past year, even though economic fundamentals do not justify the rise.

But the strong moves by the government to restore order in the market could backfire, according to Evan Lucas, market strategist at trading firm IG, quoted by the Financial Times: "[Its] firm response to the past 18 days of turmoil does "create perceptions that further liberalisations and free market principles will be abandoned as Beijing grapples with additional regulations".

"This will create longer-term issues," he added.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.