21 September 2019
Was it a flash in the pan? The market rally in the past several days seems to be losing steam. Photo: WSJ
Was it a flash in the pan? The market rally in the past several days seems to be losing steam. Photo: WSJ

What happens now that A-share sentiment is again crumbling?

After three days of rallies, China’s stock market is running out of steam again.

On Tuesday, the Shanghai Composite Index was down nearly 3 percent at one point.

Heavyweight stocks recovered near the close but PetroChina (601857.CN) saw its stock plummet 5.7 percent before clawing back to narrow the loss to 1.9 percent 30 minutes before the end of the session.

Bank of China (601988.CN) got back to a gain of 0.4 percent in a final burst of buying after slipping 5 percent

These show government intervention in the past several days still hangs over the market.

But the fact is market sentiment has again begun to crumble even though a number of suspended stocks have resumed trading.

Again, the government could step in.

However, like the previous round of intervention, any such move faces an uncertain outcome.

Earlier measures included a ban on share disposal by investors who hold more than 5 percent of any stock, large-scale share purchases by state institutions and a freeze on new listing applications.

As a result, state-backed counters weakened amid signs the government was stepping back from the market while oversold stocks rebounded across the board.

A series of interest rate cuts and reductions in banks’ reserve requirement ratio stoked excessive optimism.

First-half monetary data shows the government shifted to a targeted relaxation of monetary policy.

Meanwhile, Premier Li Keqiang said the government should tackle macro issues more precisely and effectively.

These include stepping up efforts to clear local government debt.

The central authorities are considering another one trillion yuan in local government debt swaps.

That would benefit mainland banks the most and help ease pressure from non-performing loans.

The market is expected to be more conservative toward the stock market in the second half.

A V-shape rebound in A shares is likely, with the peak at 4,500 points, according to mainland brokerage Guosen Securities (600109.CN).

This reflects changing market sentiment as investors become more cautious and realistic after the recent crash.

The stock market is unlikely to post another crazy jump in the short term and the Shanghai benchmark index is unlikely to return to the previous peak of 5,178 points anytime soon.

This article appeared in the Hong Kong Economic Journal on July 15.

Translation by Julie Zhu

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal