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China Stock Rally Takes Breather as Traders Weigh Support Steps

News Team

Chinese shares fluctuated as traders took stock of the latest measures to stabilize markets amid persistent economic risks. 

The benchmark CSI 300 Index was up 0.3% as of the mid-day trading break after swinging between gains and losses. If it ends Thursday higher, the gauge would be seeing an eight-session advance, the longest winning streak since July 2020. In Hong Kong, the Hang Seng China Enterprises Index climbed as much as 0.6%.

Beijing has resorted to somewhat controversial measures 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 include likely stock purchases by state funds and a clampdown on quant trading — have put a floor under the rout, many see it as a technical upswing that may wind down if supports taper.

China has banned major institutional investors from reducing equity holdings at the open and close of each trading day, Bloomberg reported Wednesday. Such tightened grip on trading activity 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.

“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.”

Foreign funds added 1.6 billion yuan ($222 million) of onshore shares through the trading links with Hong Kong as of mid-Thursday, boosting holdings again after scooping up more than 13 billion yuan in the previous session.

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 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.

Even so, 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.

Source: https://finance.yahoo.com/news/china-stock-rally-takes-breather-024119329.html