Equities recover on mainland bourses

Policy assurances by top officials and regulators help to revive market sentiment

Equities recouped losses on Friday as policy assurances by top government officials and regulators helped revive sentiment after share prices had crashed to a four-year low on Thursday.

The Shanghai Stock Exchange Composite Index and the Shenzhen Stock Exchange Composite Index edged up by 2.58 percent and 2.79 percent respectively, revising the major sell-off on Thursday, as senior officials made a series of pledges that the market was eagerly anticipating.

Vice-Premier Liu He said in an interview on Friday published by Xinhua News Agency that the government was committed to the healthy development of the financial market and would roll out more supportive measures.

Responding to concerns about the credit squeeze in the private sector, Liu gave assurances that private companies would be looked after, while “behavior that is not conducive to the growth of private companies would be prohibited.”

Earlier, Yi Gang, governor of the People’s Bank of China, the central bank, said in a statement that the recent turmoil in the stock markets was investor sentiment and expectation-driven, rather than representing actual economic fundamentals. “The economy has continued to maintain steady growth,” he said.

Recent measures enacted by the local governments to ease liquidity risks “are encouraged”, and the central bank will come out with more steps to ease financing difficulties of companies, Yi said.

In line with his positive rhetoric, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said in a separate announcement that the recent performance of the stock market did not reflect economic fundamentals. More efforts will be taken to bring the financial market back to normalcy, he said.

As part of the efforts to assuage concerns, insurance companies will be allowed to offer products that will help companies who have already used their own shares as collateral to raise funds and are facing financing woes, said Guo.

Liu Shiyu, head of the China Securities Regulatory Commission, said the government will encourage local governments and venture capital firms to establish new funds to ease the financing woes of companies with a high quantity of pledged shares.

“Policy pledges by top officials played a key role in the market rebound, and there is still room for the effect to continue for a while and stabilize market expectations,” said Wang Jun, chief analyst with Huangchuang Securities.

The government’s decision to allow asset management funds to flow into the stock market will help ease the liquidity crunch due to the earlier deleveraging campaign, said Wang.

Looking ahead, some factors such as the tax relief measures and the yuan exchange rate also deserve attention, he said.

Investors can expect the stabilizing efforts to gradually take effect, said Li Xunlei, chief economist with Zhongtai Securities.