China's stocks bounce back after emergency intervention by government

Emergency intervention by the Chinese government appeared to partially stabilise its plunging stock markets on Monday with early trading showing some positive results.

Within the first ten minutes of trading, Shanghai’s stock index had risen almost 8% although those gains dropped to 3.23% within an hour. It then went into negative territory before rebounding to close over 2% up.

Beijing announced measures over the weekend to try to prevent more losses on the stock markets which have seen falls of 30% over the past three weeks, including 12% last week.

China’s stock markets had previously been among the top performing in the world and had hit a 7-year peak in the middle of June. The Shanghai stock market had surged more than 150% in 12 months.

State media reported that over the weekend that the Chinese government, along with the securities regulator and financial institutions had launched a joint effort to prevent more losses.

China’s 21 biggest brokerages announced that they would buy at least 120bn yuan of shares to help prevent a fresh market slump.

New share offerings were also suspended on orders of the State Council. Twenty-eight Chinese companies which had obtained permission for initial public offerings announced on Sunday that they would postpone follow-up issues of shares.

Meanwhile the People’s Bank of China made a commitment to provide liquidity for state-back lenderChinaSecurities Finance Corp, a state owned company which provides margin loads to brokerages.

Analysts seemed confident the actions would have an ongoing positive impact on China’s stock markets.Shao Yu, chief economist with Orient Securities said the actions taken were clever.“I think it will stabilise the market, of course there will be some fluctuation but more and more money put into the market, I think it will be helpful to keep the market steady,” Shao said.

However he added that he didn’t expect the market to reach the heights it had previously.Previous efforts to keep share prices from falling, including interest-rate cuts and plans to investigate shortsellers proved unsuccessful.The Shanghai stock market has lost £1.8 trillion in market value over the past three weeks.

China’s stock market is made up of mostly individual investor rather than institutional investors. Almost 90 million people hold shares, and up to 1.4 million new investors a week open stock accounts. According to media estimates, the average loss of individual stock accounts has been around 420,000 yuan.