CHINA’S efforts to stave off a crash in the world’s most volatile stock market showed signs of gaining traction yesterday, with the country’s main share benchmarks surging amid signs of intensifying government support.

    Chinese equity markets have fallen more than 20 percent from their peak in mid-June, when a yearlong rally fueled by cheap money shuddered to a halt as a crackdown on leveraged stock trading triggered panic selling.

    On Monday, China’s main indexes dropped a stomach-churning 7 percent before a sudden reversal. Yesterday began with another market tumble in early trade, before reversing course dramatically as the government scrambled to temper the sell-off.

    The government has already enacted a suite of measures that appear targeted at stabilizing sentiment in a market dominated by individual retail investors prone to mood swings.

    On the liquidity front, the central bank made multiple monetary easing moves last week and over the weekend, including cutting rates and reducing or eliminating banks’ reserve ratios.

    Regulators also unveiled rules to let local government pension funds buy stocks for the first time, potentially channeling hundreds of billions of yuan into the sagging equity market.

    The pension fund’s managers can invest as much as 30 percent of its total assets in the stock market. This is a big sum, given that outstanding contributions to the fund stood at 3.06 trillion yuan (US$500 billion) at the end of 2014.

    But it appeared to be signs of direct government support to the market, combined with rumors of other behind-the-scenes “window guidance” to institutional investors, that triggered a sharp rebound yesterday afternoon.

    Intensive subscriptions were seen Monday for four major exchanged traded funds in Shanghai, fueling speculation that the surge of money into ETFs was in fact coming from government coffers.

    The China Securities Regulatory Commission said Monday night that risks from margin trading were controllable. On Friday, the outstanding volume of margin trading stood at 96.5 billion yuan, 4.3 percent less than two weeks ago.

    (SD-Agencies)

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