On Thursday, Chinese markets regained some lost ground with shares making their biggest daily gain in six years as investors start to show confidence in government measures to rescue the stock market.
The Shanghai Composite index (SHCOMP, +6.09%), which has lost 32.1% of its value over the last 17 days, saw a glimmer of light on the horizon as the index recovered by almost 6% on Thursday to record its biggest one day gain since 2009.
According to Business Insider, a note from Bank of America Merrill Lynch analysts on Thursday morning said that $2 trillion was wiped off the Shanghai Composite, the country's benchmark stock index, as a result of the collapse in the markets.
Meanwhile, the smaller, but no less important Shenzhen Market (399106, + 4.14%) also showed a recovery on Thursday recording gains of 3.8% on the day while the small-cap ChiNext board (39906, +4.11%) showed a gain of 3% by close of business on Thursday after having almost 38% of its value wiped off since June.
Also, Hong Kong (HSI, +1.74%), which had suffered a Chinese market contagion on Wednesday with its worst trading session since the start of the global financial crisis, benefitted from the upsurge in China when it closed 3.7% up, its biggest one day gain since April.
Tang Yonggang, a Shenyin Wanguo Securities analyst said, “The market shows signs of stabilizing because the regulator came to rescue small caps, especially those on the ChiNext, which eased the liquidity crisis and gave investors a much needed dose of confidence.”
The return of investor confidence came after intervention in the market by the China Securities Finance Corp. following an announcement by regulators that the commission unit, a provider of financing for margin trading, would increase its purchases of small-cap stocks. The Xinhua News Agency reported that in another move, Chinese Police had visited the China Securities Regulatory Commission to investigate what it termed “malicious short selling”. This is widely interpreted as an additional government move to boost investor confidence and to stem the share selloff.
Bloomberg reported that 1400 companies, or around 50% of listed stocks, have been suspended from trading on China's share markets in a move to avert further losses. This action unfortunately also has the effect of seizing up the markets.
The other measure enacted by regulators on Wednesday, in order to stem the share sell off, barred major shareholders and executives of listed companies from selling their stocks for six months in the interests of maintaining stability.
In a research report released by Societe Generale, the banking group said, “The Chinese government is having ‘ a whatever it takes’ moment with the stock market. More resources will probably be ramped up for the battle in the coming days.”