Shanghai - China’s government intervened in the stock market on Thursday to end a $5 trillion rout, according to people familiar with the matter.
China wants to stabilise equities before a September 3 military parade celebrating the 70th anniversary of the victory over Japan during World War II, said the people, who asked not to be identified because the move wasn’t publicly announced. The intervention is the latest measure to ensure nothing detracts from the parade, an event the government will use to demonstrate its rising military and political might.
The Shanghai Composite Index swung from a loss of 0.7 percent to rally 5.3 percent in the last hour of trading, ending its steepest five-day rout since 1996. The government bought large-company stocks, according to one of the people. The China Securities Regulatory Commission didn’t immediately respond to a faxed request for comment.
A gauge of 50-day volatility on the Shanghai Composite surged to its highest level since 1997 this week amid signs the government had pulled back from rescue measures to support the world’s second-largest stock market. Officials previously armed state agency China Securities Finance with more than $400 billion to purchase shares. The authorities shouldn’t withdraw stabilisation efforts as equity trading has yet to return to normal, according to a front-page commentary on the Securities Daily.
Rate cuts
The government halted intervention in the equity market earlier in the week as policy makers debated the merits of an unprecedented rescue, according to people familiar with the situation.
Stocks failed to sustain gains on Wednesday after the central bank cut interest rates and reduced the amount of required reserves for banks. The index tumbled 42 percent from its mid-June peak through Wednesday as margin traders closed out bullish bets and concern deepened that valuations are unjustified by the weak economic outlook.
The military parade has been planned for months and will provide President Xi Jinping his first opportunity to publicly present himself to the world as China’s commander in chief. Such events, usually held on major anniversaries of the country’s founding, serve as a key ritual in establishing the Communist Party chief’s supreme authority over the country.
Markets closed
Party leaders, government officials and military commanders have spent much of this month meticulously planning details of the procession, which will feature 12 000 troops and foreign leaders including Russian President Vladimir Putin.
China’s financial markets will be shut on September 3 and 4 for national holidays marking the end of the war.
Gauges tracking financial and industrial companies jumped more than 6.8 percent on the CSI 300 Index on Thursday. Industrial & Commercial Bank of China advanced 4.7 percent, and Bank of China rallied 6.3 percent. Both stocks climbed the most since early July.
BLOOMBERG