Bloomberg: U.S. Dot-Com Bubble Was Nothing Compared to Today’s China Prices

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http://www.smh.com.au/business/markets/c...ipk7u.html

China stock market: JPMorgan, UBS calm about $US450b of capital outflows
Date
August 2, 2015 - 6:22AM

Luke Kawa

Much of China's capital outflows can be attributed to seemingly prudent management of corporate-sector balance sheets. Photo: Bloomberg

Massive capital outflows from China over the past four quarters have been viewed as a symptom of the moderation in growth prospects for the world's second-largest economy and a possible cause of further weakness.

According to JPMorgan chief China economist Zhu Haibin, capital outflows - the net amount of assets leaving China - totalled $US450 billion in the past four quarters, after adjusting for changes in the valuation of foreign exchange reserves.

"The magnitude and the duration of capital outflows are unseen in China," the economist writes.

The simple inference that can be made from these headline figures is that assets are leaving China en masse, in search of superior returns elsewhere; the money that flowed in during boom times has reversed course.

Capital outflows can become a big problem when they reduce domestic liquidity and, in the case of full-fledged capital flight, foster a sharp depreciation in the currency.

But in analysing and decomposing the nature of these capital outflows, economists have concluded the picture is considerably more nuanced - that the reasons these assets moved out of the country are not cause for alarm.

Much of the capital outflows can be attributed to seemingly prudent management of corporate-sector balance sheets.

Due to a growing realisation that the yuan would not be a one-way trade grinding higher against the US dollar, Chinese corporations sought to pay down foreign exchange liabilities.

Kewei Yang, head of Asia-Pacific rates strategy at Morgan Stanley, explains:

"[T]he private sector is being more active in the optimization of asset-liability management (ALM). During periods of macro weakness and rising expectations of RMB weakness, the private sector becomes more active in reducing USD liabilities and increasing USD assets."

UBS chief China economist Wang Tao agrees:

"We think that the unwinding of earlier foreign exchange liabilities and "arbitrage inflows" by domestic entities have contributed significantly to the recent large outflows. In the few years before Q2 2014, especially during much of 2013 and early 2014, as the expectation of RMB appreciation had been strong and the onshore-offshore interest rate gap had been large. As a result, domestic entities accumulated foreign exchange liabilities rapidly, including through offshore borrowing. China's short-term foreign debt rose significantly and foreign banks' international claims to Chinese entities expanded by $US440 billion between end 2012 and Q1 2014, according to data from the Bank for International Settlements (BIS).

"Since Q2 2014, following the PBC's move to guide a modest weakening of the RMB, the market has expected a depreciation of the RMB instead. The weakening of Chinese economy and cuts in interest rates, and the strengthening of the USD along with QE tapering, have solidified expectations of further RMB depreciation. Such changes have prompted Chinese entities to reduce FX liabilities and accumulate FX assets.

Yang expects Chinese policymakers won't allow their currency to fall too fast, so as not to greatly exacerbate worries about paying back dollar-denominated liabilities, writing that "unprepared weakness in the currency might potentially pose a more serious risk to financial stability in China (more serious than the equity market turmoil)."

UBS and JPMorgan's economists also make the point that in terms of net foreign investment, the amount coming in hasn't changed - outward direct investment has just picked up steam.

The Chinese government wants corporations to keep revenue generated abroad in those locales and has encouraged domestic banks to lend overseas as part of a "going out" strategy, Wang observes. Therefore, these kinds of capital outflows could be viewed as "mission accomplished" for Chinese policymakers.

And these outward flows are further skewed by the government, which has doled out at least $US168 billion to recapitalise policy banks and fund international lending institutions since the second half of 2014, she adds.

Finally, JPMorgan's Zhu says the increased internationalisation of the currency-chiefly, settling more international trade in yuan-"has significantly reshaped the capital flow dynamics," with more imports settled in yuan than exports. According to his calculations, cross-border settlements are responsible for roughly one-quarter of capital outflows since the second half of 2014.

Once you account for corporate balance adjustment, the increased internalisation of the yuan, and the change in net foreign direct investment, the unexplained portion, or so-called hot money outflows, accounts for less than 30 percent of total outflows over the past four quarters, Zhu estimates.

The economist contends that China is experiencing a regime change in its balance of payments composition, one that appears to be largely intentional and policy-driven. While the country once enjoyed sizeable current- and capital-account surpluses, the shift to a deficit in the latter is likely to continue-and that's nothing to get too worked up about.

"Such a regime-shifting was driven by the exchange rate reform (reduced intervention by the central bank in the FX market), the change in CNY outlook, the impact of RMB internationalisation, the changing role of China from a capital recipient to a capital exporter (e.g. One-Belt-One-Road), and other global and domestic market factors," writes Zhu. "Again, capital outflow is not equivalent to capital flight."

Meanwhile, UBS's Wang believes the Chinese government has tools at its disposal to prevent capital outflows from spiralling out of control and domestic liquidity from drying up.

"If the Chinese government is concerned about sudden and destabilizing outflows, it could slow the pace of capital account opening and stabilise exchange rate expectation by anchoring the daily fixing rate and intervening in the FX market," the economist writes. "We think China's $US3.7 trillion in FX reserves and existing capital controls can help provide sufficient cushion against large unwanted depreciation pressures in the coming year."

Further reductions to the reserve-requirement ratio would also help spur base money growth and offset the negative impact capital outflows can have on domestic liquidity conditions, she adds.

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Beijing needs exit strategy after rescue mission
PETER CAI THE AUSTRALIAN AUGUST 04, 2015 12:00AM

Investor confidence rests on Beijing’s willingness to support the sharemarket. Source: AFP

Chinese sharemarkets have seen unprecedented volatility in the past few weeks after a dramatic crash in June wiped out $3 trillion of market value.

What followed was an equally epic rescue mission. Beijing, a self-professed believer in market discipline, plunged 1 trillion yuan ($220 billion) of state funds into buying shares to prop up the index.

The government achieved a Pyrrhic victory. The market stabilised after the huge rescue operation but has since crashed a few times after rumours spread the government intended to pull its support from the market.

The fragile investor confidence rests on Beijing’s willingness to plunge more and more money into the sharemarket. To say the government is caught between a rock and hard place is an understatement. Once the government decided to get involved in the mess, there was no easy way out.

China Securities Finance Corporation, the once obscure state-owned company that provides margin financing loans to brokers, now has more than 1 trillion yuan of shares on its books. It has been thrust into the limelight as the principal vehicle for Beijing to conduct its market rescue operations. The central bank uses it as the conduit through which it pumps money into the market.

The government needs to think about an exit strategy for the state fund. At present, it is still too early to exit without impacting on market value and investor confidence. One senior regulator reportedly told Chinese media: “Once you are in, it is hard to leave too soon.”

But the government must present a credible exit strategy to the market and investors over the longer term, unless it wants to turn the temporary rescue mission into a permanent fund to prop up the market whenever it experiences volatility. It is doubtful this is the path Beijing wants to take. It would be a bridge too far, even for diehard supporters of the command economy.

So, how does one exit the market after a huge government-­orchestrated rescue operation? There are few examples of a government buying shares directly to prop up the sharemarket. In any event, any exit strategy is likely to take a long time. You need look no further than the time it has taken the US Federal Reserve to start winding back its quantitative easing program.

However, there is a lesson closer to home that Beijing’s technocrats can learn from. During the Asian financial crisis in 1997, the Hong Kong government used its large foreign exchange reserves to directly intervene in the sharemarket after the Hang Seng index dropped as much as 10,000 points, from 16,000 to 6600. There was panic in the market after the Korean won, Thai bhat, Indonesian rupiah and Malaysian ringgit collapsed one after another.

The Hong Kong Monetary Authority used nearly $HK120bn ($21bn) to buy stakes in 55 blue-chip shares. The raid snapped up nearly 10 per cent of all blue chips in Hong Kong. The move was considered controversial at the time, especially considering Hong Kong’s longstanding reputation as one of the freest economies in the world.

Hong Kong’s then financial secretary, Sir Donald Tsang, who later became chief executive of the special administrative region, said at the time: “The whole purpose of going into the market is to restore order. For that reason, when we unload these stocks, it will be an orderly operation, it will not be an abrupt operation.”

Like the Chinese authorities, the Hong Kong government believed it was under attack from international short sellers. During the time of crisis, it is always nice to have real or imaginary foreign speculators as your enemy to justify interventionist policy.

David O’Rear from the Economist Intelligence Unit said at the time: “If they sell all of their shares at one time, the market will crash. Because they took this extraordinary step, they have the responsibility to unwind their positions in a responsible way,” according to The Standard, an English language paper published in Hong Kong.

Chinese regulators now face a similar predicament — how to leave the market without causing too much disruption. The Hong Kong authorities opted for a market-friendly option. The government established an exchange trade fund, The Tracker Fund of Hong Kong, in November 1999. State Street Global Advisors was appointed as manager and State Street Bank and Trust was appointed as trustee to help the government to dispose of the shares.

By 2002, the fund had returned $HK140bn of shares to the market, while the government has earned an annualised return of 4.09 per cent since its inception in 1999. Hong Kong offers a tried and tested method for Beijing to exit the market.

Another alternative is for the government to transfer all the shares it has acquired during the market rescue operation to the National Pension Fund.

Whatever the government decides to do, it needs to return to the path of market reform. Appointing professional fund managers to dispose of shares acquired during its controversial rescue operation is a good starting point.

[greengiraffe]

China’s response to stock rout reveals regulatory disarray
LINGLING WEI THE WALL STREET JOURNAL AUGUST 05, 2015 8:11AM

Chinese Premier Li Keqiang demanded better coordination from regulators. Source: AFP

As China’s summer stock slide deepened, threatening a key plank of Beijing’s plan to overhaul the world’s No. 2 economy, the country’s premier pounded the table and demanded that regulators get their act together.

Meeting with senior financial and economic officials in Beijing on July 4, Li Keqiang criticised them for failing to anticipate the severe market plunge, officials with knowledge of the gathering said. Then he urged them to act in a coordinated way to stanch the bleeding, these officials said.

“I want strong measures to rescue the market,” ordered the usually mild-mannered premier, according to the officials. At the meeting were those in charge of China’s central bank, the country’s securities and banking regulatory agencies and the Finance Ministry.

The regulators, who had previously acted in isolation and sometimes at cross-purposes, responded. China’s central bank unleashed a flood of money aimed at a state agency tasked with propping up share prices and investors who borrow to buy shares, while the securities regulator halted new listings and state-owned companies and brokerages pledged to buy up shares. The moves helped stem drops that had erased most of the gains China’s stock market posted during this turbulent year.

Beijing’s new-found unity now faces a test. China’s stocks had been flat since July 6 but resumed their downward march in recent days, falling 8.9 per cent since July 23, bringing the total loss since the slump began in mid-June to 27 per cent, or a market value of $US3.4 trillion, driven by weakening investor confidence amid a slowing economy.

Longer term, the uncoordinated response from regulators in the months leading up to the July 4 meeting raises questions about whether Chinese authorities will be up to the challenge of implementing market changes and introducing greater risks into the country’s financial system.

“The recent sharp rises and falls in the stock market offered a stress test on the stability of China’s financial system as well as the ability of regulatory agencies to respond to emergency,” said Zhang Ming, a senior economist at the Chinese Academy of Social Sciences, a government think tank. The “lack of regulatory coordination” exposed by the market turmoil, Mr Zhang added, should make the government “all the more cautious” about carrying out its pledge to allow freer flows of capital across China’s borders.

Interviews with more than a dozen Chinese officials and advisers to the government show conflicting moves and a lack of coordination hampered Beijing’s initial response to the market rout. At one point, the securities regulator made a move that put downward pressure on the market in the same week that the central bank moved to push it up. Until July, a major source of market funding went largely untouched by regulators. The securities regulator more than once moved to trim lending to investors to buy shares, only to reverse course.

“There was an obvious lack of communication between the central bank and the securities regulatory commission on what needed to be done to prevent a market meltdown,” a Chinese official close to both institutions said. “It can be argued that the market-rescue effort could have been less costly had there been better regulatory cooperation.”

Even at the July 4 meeting, officials weren’t initially on the same page, said the officials familiar with the discussion. Zhou Xiaochuan, governor of China’s central bank, and Lou Jiwei, China’s finance minister, both objected to using too-aggressive intervention because they felt it would harm China’s effort to bring more market forces into its economy, said the officials. They eventually went along with Mr Li’s plan, which, according to the officials, was then signed off on by President Xi Jinping before he left for Russia on July 8. Mr Xi’s endorsement underscores the leadership’s desire to restore the public’s confidence in its ability to manage the economy as well as to prevent the stock malaise from spreading to other parts of the economy.

In a statement published on the central bank’s website late on Tuesday, the PBOC said it has “strengthened coordination with financial regulators … and held fast to the bottom line that no systemic or regional financial risks should occur.”

Press officials at China’s main financial regulatory agencies including the securities commission, banking regulator and Finance Ministry didn’t respond to requests for comment.

Chinese officials have sought to allay concerns over their commitment to financial reforms. Last month, in the midst of the market rout, the central bank scrapped quotas that limited investments from foreign central banks, sovereign-wealth funds and other big financial institutions in the country’s $US6.1 trillion bond market, signing Beijing’s intention to move forward with change.

One of the first signs of regulatory confusion emerged in late June, when Chinese stocks started to sell off. The People’s Bank of China — dubbed yang ma in China, or Big Mama — on June 27 unveiled a quarter-point interest-rate cut and loosened some banks’ reserve requirements, a rare twostep not seen since the height of the 2008 global financial crisis.

But in the following days, the China Securities Regulatory Commission approved plans by many companies to sell new shares — moves that could sap market liquidity at a time of cooling investor demand. The securities watchdog didn’t halt new share offerings until more than a week later, after Mr Li’s July meeting. Analysts attributed the drop in shares in late June in part to the commission’s move. The CSRC’s action surprised and frustrated PBOC officials, say some at the central bank.

The disarray highlights the competing interests of different regulators. The central bank looks at the country’s overall financial stability, while the securities regulator oversees the capital markets. Under Xiao Gang, former head of one of China’s biggest state-owned banks, the securities agency wants to make China’s stock markets — long seen as immature and driven by flighty retail investors — into a valid funding source for companies shunned by risk-averse banks. But it also wants to give indebted state-owned companies — a major impediment to making China’s economy more market-driven — a place to sell shares to pay off their debts, giving the agency an incentive to keep IPOs flowing.

Regulatory disorganisation was also apparent in how China dealt with the rapid build-up of debt used by investors to finance their share purchases. Neither the country’s central bank nor securities and banking regulators has clearly defined authority over what is known as margin financing, a major driver of China’s share run-up since last year.

Official data show margin borrowing from brokerages surged nearly fivefold over the past year to about 2 trillion yuan ($US322 billion) in early June before the boom turned to bust. Official margin financing stood at 1.34 trillion yuan on July 31, according to data provider Wind Information, as many investors rushed to unwind their leveraged bets amid falling stock prices.

But those figures didn’t include money borrowed by investors from unofficial channels such as banks and internet finance firms — an amount that brokerage Everbright Securities estimates totalled an additional 2 trillion yuan as of last month. As the sell-off worsened in early July, triggered by heavily indebted investors rushing for the exit, the central bank had to step in to make cash available to brokers to expand margin lending to investors.

The securities regulator has also changed course on its own margin-financing policy. In mid-April, it sought to cut back on margin financing provided by brokerages. But the agency backed off from that effort when stocks fell in May due to a potential liquidity squeeze.

In early July, the agency started allowing investors to borrow against their homes to buy equities. The measure came just weeks after the regulator warned investors of the risks associated with such borrowing and promised to tighten supervision over margin financing.

China’s leadership has been trying to make its financial regulators work better together by forming an interagency group called the Financial Stability Coordinating Committee. However, the group, set up in 2013 and headed by Mr. Zhou, the central-bank governor, has largely been inactive, according to Chinese officials.

Chinese stocks took another severe beating on July 27, when the benchmark Shanghai index fell 8.5 per cent — the most in more than eight years — partly due to speculation that the government could soon end its rescue mission.

“There is a learning curve” for the government on how to deal with financial markets, said Zhu Haibin, China economist at JP Morgan Chase & Co, at a media round table in late July.

Wall Street Journal

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http://www.bloomberg.com/news/articles/2...sis-coming

Meet China’s Stock Savior: He Never Saw the Crash Coming
August 3, 2015 — 6:00 AM SGT Updated on August 3, 2015 — 4:23 PM SGT

Nie Qingping, General Manager of China Securities Finance Corporation Ltd., at a seminar in Wuhan. Photographer: Imaginechina

After China’s stocks crashed in June, the government put more than $400 billion at the disposal of a little-known state agency, the China Securities Finance Corp., headed by an academic and bureaucrat named Nie Qingping. It was told to save the market.
The agency’s unique mandate is to intervene in the market to buy stocks, with money borrowed from the central bank and other sources, in order to help prop up share prices. With the recent volatility evidenced by another crash on July 27, its success so far isn’t readily apparent.
“Things in China are never dependent on one person. It’s always a plan designed by the very top”
Nie, the 53-year-old chairman, hasn’t given interviews on his emergency role, and the government hasn’t spelled out exactly what discretion Nie and his agency have when executing orders from above. Four weeks into the new role, the picture emerging from Nie’s published books and commentaries, as well as interviews with fellow academics, is of a professor with 25 years of experience watching stock manias -- who still got blindsided by China’s latest crisis.
“The latest rally has the characteristics of a structural bull market,” Nie wrote in an article in March, joining a chorus of officials and state-media commentators talking up the market’s prospects. As one of the architects of China’s move to allow margin financing, in which people borrow money to buy stocks, Nie played down concerns that debt-funded stock purchases were rising too quickly.
Now, Nie faces a “Herculean task” as head of an agency that never expected to be handed the role of market savior, according to Liu Yuhui, a Beijing economist and a researcher at the Chinese Academy of Social Sciences.
Trickling Fountain
China Securities Finance was set up in 2011 to provide liquidity for brokerages offering margin financing. Housed on the 15th floor of a building in Beijing’s financial district, in an office where water trickles over traditional Chinese rock sculptures, Nie and his 70-odd staff got access to between 2.5 trillion yuan and 3 trillion yuan ($403 billion to $483 billion) for the rescue, according to people familiar with the matter.
Why Some Chinese Equities See Volatility Surging
“The role of stock bailout most certainly wasn’t their mandate when they started China Securities Finance,” said Fraser Howie, a co-author of “Red Capitalism,” a book on China’s financial system. “It was set up to do one job, and clearly has been co-opted or coerced -- you can choose your verb -- to go and do another job.”
Volatility Surge
The money on tap is in the form of credit from commercial lenders and from the People’s Bank of China, which has its headquarters about a mile away, as well as from the proceeds of bond sales. It’s designated for buying shares and mutual funds, as well as the agency’s usual role of liquidity for margin finance.
Since China Securities Finance started buying on July 6, a measure of volatility in stocks has surged to nearly a 20-year high. On July 27, the Shanghai Composite Index plunged 8.5 percent, the most since February 2007, as investors feared that the government was pulling back from its rescue efforts. On Monday the index lost another 1.1 percent, extending the loss from its June 12 peak to 30 percent.
While Nie’s in the spotlight, that doesn’t mean he’s in control
Details of how China Securities Finance now operates, how much liquidity remains at its disposal, and how it chooses which stocks and mutual funds to buy haven’t been released officially. Neither Nie nor the agency responded to requests for comment.
The agency first bought blue-chip companies before also targeting mid- and smaller-sized companies on July 8, according to statements by the China Securities Regulatory Commission, which oversees the agency.
Stock Mania
“Its opacity has already led to extreme volatility and confusion in the stock market,” said CASS’s Liu, who also works for brokerage GF Securities Co. “Investors deserve to know more about it.”
As a junior official, Nie received training at the London Stock Exchange before he was dispatched by the People’s Bank of China to help investigate a bout of stock “mania” in Shenzhen in 1990, which ultimately led to the creation of a formal stock market. People had stopped working to speculate on shares, according to his book “The Long on China,” a history of the stock market. Investigators determined the causes were high dividend payouts, a lack of limits on daily share-price moves, and a limited supply of stocks, he wrote.
Nie headed China’s task force that designed the rules for short-selling and margin financing, which China began allowing in 2010.
Bull Run
In an article published by Caijing magazine on March 20, Nie played down concerns about margin financing’s role in the latest stock rally. He wrote that calling the run-up in stock valuations a “leveraged bull run” was inappropriate, since investors saw value in stocks and were borrowing to invest in blue-chip companies.
The article came after margin financing had more than doubled in the previous six months, with the Shanghai stock index leaping 58 percent.
Besides lecturing at universities -- Nie is accredited as a professor at at least two -- his resume also includes a three-year stint at China Everbright Holdings Co.
His latest book, “Theory and Practice of Securities Lending,” published in March, does warn of hidden risks in over-the-counter margin finance, calling it a “black box” in which brokerages sometimes offer funding to customers who aren’t qualified for it. The book also warned that some stocks had gained too much and that some investors could face margin calls because their portfolios were overly concentrated.
Still, the book gave a bullish view on how securities finance would develop, saying that in five years’ time, margin finance and short-selling would account for close to 20 percent of the value of A-share turnover, up from 10 percent.
An academic who has known Nie since 1998 when Nie was at Everbright and worked with him at the China Securities Regulatory Commission, He Jia, called him nice, smart and “maybe more of an academic than a government official,” because of the volume of his academic writing.
While Nie’s in the spotlight, that doesn’t mean he’s in control, said He, who’s a finance professor at the Chinese University of Hong Kong.
“Things in China are never dependent on one person,” he said. “It’s always a plan designed by the very top.”

[thor666]

http://www.bullbearings.co.uk/traders.vi...d=1&id=840

Comparing china's crash with railway crash of 1843-45..

Sent from my D5503 using Tapatalk

[greengiraffe]

railway crash - information highly inefficient... now policy makers have so much information and tricks up their sleeves... its if they want to or don't want to

http://www.bullbearings.co.uk/traders.vi...d=1&id=840

Comparing china's crash with railway crash of 1843-45..

Sent from my D5503 using Tapatalk

[BlueKelah]

So looks like they want to make it lower today...

Shanghai Composite plunges 6%, futures lower

[BlueKelah]

China’s Richest Traders Flee Stocks as the Masses Pile In

[corydorus]

Try to keep the Balloons continuously up in the air without enough Helium (fundamental) by continuous bouncing with their hands (interventions). Is just a matter of time it will fail.

[greengiraffe]

http://www.bloomberg.com/news/articles/2...y-s-tumble

China’s Stocks Reverse Declines as Traders Weigh State Support
August 19, 2015 — 9:25 AM SGT Updated on August 19, 2015 — 4:15 PM SGT


China’s stocks rose in late mainland trading to reverse an earlier plunge as investors weighed the level of government support for the equity market.
The Shanghai Composite Index gained 1.2 percent to 3,794.11 at the close, erasing a loss of as much as 5.1 percent. The gauge slumped 6.2 percent on Tuesday. Hundsun Technologies Inc. and Dongxu Optoelectronic Technology Co. both jumped 10 percent, leading a rally for companies that disclosed government-backed funds had bought their shares. The Hang Seng Enterprises Index slid 1.2 percent to a nine-month low in Hong Kong.
“The market expects the government will step in if the Shanghai Composite falls towards 3,500, but more and more people in the mainland sees that the bull market is over,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “With weak sentiment, we will continue to see unstable moves in the market.”
Stocks tumbled this week after the securities regulator said late Friday that China Securities Finance Corp., the state agency tasked with supporting share prices, will reduce buying as volatility falls. China’s richest traders are cashing out of stocks, while a record drop in yuan positions at the central bank and financial institutions last month signaled investors are moving money out of the country.
Volatility in Chinese markets has reverberated around the world over the past two months as slowing growth complicates efforts by the ruling Communist Party to loosen its grip on the financial system and shift to a more consumer-driven economy.
Rich Quit
As the state stepped in to shore up equities, China’s wealthiest investors have been the quickest to sell. The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to data compiled by China Securities Depository and Clearing Corp.
The Shanghai Composite rebounded 14 percent from its July 8 low through Monday after the government took unprecedented measures to end a $4 trillion rout. The yuan tumbled by the most in 21 years last week after an unexpected devaluation by the central bank. The Chinese currency was little changed at 6.3965 per dollar in Shanghai on Wednesday.
The CSI 300 gained 1.6 percent, while the Hang Seng Index dropped 1.3 percent.
Government Buying
Hundsun Technologies Inc., partly owned by Jack Ma’s financial investment company, rallied by the daily limit in Shanghai after disclosing that government-backed funds bought its shares, overshadowing news of a regulatory probe. The company said late Tuesday that Central Huijin Investment Co. owned 1.76 percent of its shares as of Aug. 14 while China Securities Finance Corp. held 1.23 percent.
Wuhu Token Science Co., which said Central Huijin had a 1.42 percent stake as of Aug. 14, jumped 10 percent. Central Huijin is a unit of China’s sovereign wealth fund while China Securities Finance was mandated by the government in July to buy stocks as part of efforts to stem a stock-market rout.
Technology and material companies led gains on the CSI 300. Dongxu Optoelectronic Technology Co. surged by 10 percent, while Baoshan Iron & Steel Co. advanced 7.2 percent. Leshi Internet Information & Technology (Beijing) Co., the biggest mainland-listed Internet video provider, added 3.1 percent.
Trading volumes in Shanghai were 5 percent below the 30-day average. Margin traders cut holdings of shares purchased with borrowed money for the first time in eight days on Tuesday.
Chinese equity valuations are still among the most expensive in the world. The median stock on mainland bourses traded at 72 times reported earnings on Monday, higher than any of the 10 largest markets. It was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.
The Shanghai Composite has dropped 27 percent from its June 12 peak, after a 152 percent surge in the previous 12 months.
“It’s still over-priced and would be vastly lower if it wasn’t for ineffectual government intervention that is merely delaying the inevitable,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. “The basic issue is that PE ratios are crazy in too many places.”