‘ Bearish trend on exchanges petering out’
Current sell- offs are an overreaction by pessimistic investors and sentiment driven, according to analysts
Despite the volatility and lower closing, Chinese equities are slowly moving out of the bear phase, analysts said.
Though equities fell to a 13- month low on Wednesday, analysts said the rebound seen during afternoon trading is an indication of the improved market sentiment and the change from extreme pessimism to a neutral stance.
The benchmark Shanghai Composite Index declined 0.52 percent in volatile trade to close at 2,735.56 points, compared with a 6.4 percent decline on Tuesday.
The index suffered a loss of as much as 4 percent during intraday trading on Wednesday. But the rally of the big- cap oil and coal stocks in the afternoon helped the benchmark recoup some of the earlier losses.
The startup index ChiNext index in Shenzhen managed to gain 0.17 percent after tumbling by as much as 5.28 percent during intraday trading.
Wednesday’s market volatility happened after China released key economic data like industrial profits, which fell for a seventh consecutive month in December.
Guo Yanhong, an analyst at Founder Securities Co, said that the latest panic selling could be seen as investors’ overreaction as there has not been any unexpected deterioration of the fundamental economy that is capable of triggering such a sell- off.
“The current bout of selling is more about sentiment and investors’ letting out their pessimism. We maintain our neutral stance toward the market,” Guo said.
To allay investors’ worries about overseas investors shorting the A- share market, an official of the People’s Bank of China, the central bank, in Shanghai said on Wednesday that the monetary authority did not find any “abnormal” cross- border capital flows during the sell- off on Tuesday.
While some analysts predicted that the benchmark index may see a further decline to around 2,500 points before it bottoms out, the monetary policy is a key factor that could help determine the future direction of the stock market, said Jing Sijie, an analyst at BOC International Co.
“The yuan depreciation is the main trigger that seems to be constraining the monetary policy. The market is waiting to see how policymakers in Beijing can resolve the dilemma,” Jing said in a research note.
Jing said that pessimism in the Chinese stock market has become so overwhelming that it could lead to a short- term “mini rally”, similar to what investors saw in July after the market experienced a free fall in mid June.
Nonetheless, the broad market sentiment still remains fragile and the risks in the banking loans that use stocks as collateral still linger, analysts said. Four listed companies have suspended trading of their stocks.