Shares regain territory in tug-of-war between bulls, bears

Chinese shares showed signs of stabilization on Monday as China tries to underpin a stock market plagued by repeated plunges.

The benchmark Shanghai Composite Index pulled itself together, rising 2.41 percent to finish at 3,775.91 points. It was the first substantial increase over the last three weeks.

China's key index futures, which track the Hushen 300 Index, all rallied on Monday, indicating public confidence is being restored.

Two energy giants, Sinopec and PetroChina, and big banks reached or neared the daily increase limit of 10 percent. A huge amount of money from institutional investors flowed into these heavyweights, which strongly influence the Shanghai Composite Index.

Fan Jianping, chief economist at the State Information Center, said Monday was a good start.

"If the increase continues through the whole week, market confidence will be stable again," said Fan.p However, the picture was different for smaller companies. The Shenzhen Component Index and the Nasdaq-style ChiNext Index, which monitor smaller and start-up firms, lost 1.39 percent and 4.28 percent, respectively.

Hong Kong stocks also suffered a big blow on Monday, with the benchmark Hang Seng Index down 3.18 percent, mainly led by Greece's debt crisis. The contraction helped drag down mainland shares.

Since this year's peak of 5,178.19 points on June 12, the Shanghai Composite Index has nosedived 27 percent. According to Bloomberg, the market value of Chinese shares has since lost 2.36 trillion U.S. dollars, about 10 times Greece's GDP.

Monday's unstable recovery in blue-chip stocks and continued slump in smaller companies showed that the tug-of-war between bulls and bears in the market may continue or even escalate.

A week of efforts

On June 27, the central bank lowered both the interest rate and reserve requirement ratio for banks to inject liquidity into the market.

On Wednesday, the Shanghai and Shenzhen bourses announced a roughly 30-percent cut in stock transaction fees.

The China Securities Depository and Clearing Company announced a reduction in stock transfer fees of about 33 percent from Aug. 1.

On Thursday, the China Securities Regulatory Commission (CSRC) said it will investigate suspected manipulation of the stock market.

On Saturday, 21 major securities brokers promised to spend no less than 120 billion yuan (19.62 billion U.S. dollars) on exchange traded funds (ETF) that track the performance of blue chip stocks.

Twenty-five publicly offered funds said they were confident of maintaining stable and healthy development of the stock market.

Twenty-eight Chinese companies due for IPOs postponed share issuance due to recent fluctuations.

On Sunday, executives, board members and controlling shareholders of more than 20 listed companies announced plans to increase stakes in their firms to curb the losing streak.

Central Huijin Investment Co., the investment arm of the central government, announced it had purchased ETFs and would continue to do so.

China Securities Finance Co.(CSF) said it will raise funds through multiple channels and expand its business scale to help keep the stock market stabilize. The central bank will help CSF to get more capital.

More fluctuations expected

Shenwan Hongyuan Securities said in a research report on Monday that the strong supportive measures over the weekend will help the market to bottom out.

"We predict the Shanghai Composite Index will continue to rise and fall in the coming three months between 3,600 points and 4,500 points," noted the report.

Datong Securities said the downward trend may be reversed as the government ratchets up supportive measures. But the broker also said it usually needs a period of time for investors to regain confidence.

"Investment opportunities may lie in listed companies' semi-annual financial results, which are due this month," said Datong Securities.

HSBC said the government still had more options to stabilize the market, but did not elaborate on this. As liquidity matters the most in the stock market, investment firm CICC forecasted that the country's monetary policy will "stay on the loosening course". Enditem