Resource, energy firms lead rally in equities
Sentiment improves on hopes of more policies for energy sector
Share prices rebounded for a second consecutive day on Wednesday as investors recovered from the unexpected market plunge that marked the worst-ever start to a year.
The benchmark Shanghai Composite Index advanced the most in two weeks by 2.25 percent to close at 3,361.84 points. The Shenzhen Component Index gained by 2.24 percent while the startup board ChiNext Index rose by 2.14 percent.
Wednesday’s gain was led by the stocks of coal, cement, steel and commodities producers, which have been struggling with overcapacity amid a slowing economy.
Premier Li Keqiang on Tuesday visited coal-mining companies in Shanxi province, boosting investor anticipation for more support policies for the country’s struggling resources and energy companies.
Share prices of Datong Coal Industry Co and Shaanxi Coal Industry Co surged by the 10 percent daily limit on Wednesday.
The market rally took place despite a weaker yuan. The Chinese currency sank to a five-year low after the People’s Bank of China, the central bank, lowered the reference rate for the seventh day in a row to 6.5314 against the US dollar.
Lu Zhengwei, chief economist at Industrial Securities Co, said that the additional interest rate cuts may come with more exchange rate fluctuations, which may lead to a liquidity-driven market rebound.
“2016 could be the start of a
2016 could be the start of a bull market if the deprecation of the yuan ...” Lu Zhengwei, chief economist at Industrial Securities Co
bull market if the deprecation of the yuan and the liberalization of the exchange rate regime help improve corporate fundamentals,” he said.
The rebound also came after media reports suggested that State-owned funds, the so-called national team, are propping up the market after the massive sell-off on Monday triggered the newly introduced circuit breaker mechanism that resulted in a surprisingly early closure of the market.
“There’s word spreading in the market that State funds are buying, but the idea is to hold up the market, not to bolster it by a large margin,” Dai Ming, a fund manager at Hengsheng Asset Management Co was quoted by Bloomberg as saying.
The Chinese securities regulator said that it will soon roll out new policies for sales by major shareholders of listed companies to reduce its negative impact on the market.
The China Securities Regulatory Commission imposed a ban on equity sales by major shareholders during the summer to stem the market rout, which is set to expire on Friday.
As of Wednesday afternoon, at least 28 listed companies issued statements, promising that their major shareholders will not reduce stock holdings.