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Chinese shares bounced back more than three per cent on Wednesday, as Beijing's latest efforts to prop up values restored a measure of stability to its unruly stock market.
After a dramatic plunge of more than eight per cent in Chinese stocks on Monday, China's securities regulator announced probes into share "dumping" and pledged to buy stocks to calm the market, while the central bank hinted at more policy easing.
That followed moves in recent weeks in which the authorities temporarily banned shareholders with large stakes from exiting their positions and issued a string of warnings against short-selling, or betting on falls in its domestic "A-share" market.
"The possibility for A shares to rebound in the following month is quite big given liquidity is rich in the market now and short-selling ability has been largely curbed," said Zhang Qi, an analyst at Haitong Securities in Shanghai.
The Shanghai Composite Index broke a three-day slide to close up 3.5 per cent on Wednesday and the CSI300 index of the largest listed companies in Shanghai and Shenzhen jumped 3.1 per cent.
This week's turbulence shattered three weeks of relative calm for Chinese equities, secured through heavy government intervention to arrest a precipitous sell-off in late June and early July that wiped as much as $4 trillion off share values.
That sharp sell-off alarmed foreign investors, who worried about potential wider damage to the world's second biggest economy and risks to China's financial stability.
Students of technical analysis noted that, as in early July, the latest rebound came after the Shanghai index had fallen to its 200-day moving average, a long-term trend indicator popular with traders who use chart patterns to predict price movements.
Market volatility
The renewed volatility has raised questions about how Beijing can extricate itself from the raft of support measures it has placed under the stock market. Some foreign investors say the heavy-handed state intervention has also set back the market liberalisation plans at the centre of China's economic reform agenda.
"Some of the things they've done have been, to a degree, irrational," said Sat Duhra, fund manager at Henderson Global Investors.
"It's very important that if China does want to be seen as a credible destination for foreign capital, then some of these things have to be more measured and thought out." One finance firm, AVIC Capital Co, said on Wednesday it had sacked its general manager after an investment company it owns came under investigation by the securities regulator on suspicion of share sales that breached its rules.
AVIC Capital, controlled by a Chinese state-owned aerospace and defence company, said in a filing the company was being investigated for selling shares in its auto subsidiary.
Two other firms, Southwest Securities Co and Kingsignal Technology Co, announced similar investigations on Tuesday in stock exchange filings.
Slowing economy
Despite a slowing economy and weakening corporate earnings, China's main stock indexes had more than doubled over the year to mid-June, before the sudden swoon that saw them tumble more than 30 per cent.
Beijing's response included an interest rate cut, the suspension of initial public offerings, relaxed margin lending and collateral rules and enlisting brokerages to buy stocks, backed by cash from the central bank.
Monday's rapid sell-off, which saw China's major indexes suffer their biggest one-day loss in more than eight years, may have been partly due to authorities testing the water for withdrawing some of that emergency support.
Three people in the banking industry with direct knowledge told Reuters that the state-run margin lender had returned ahead of schedule some of the funds it borrowed from commercial banks to stabilise the stock market.
