Chinese Stock Market Rallies After Intervention

The Chinese stock markets have enjoyed a second day of increases following almost a month of drastically falling prices.

The Shanghai composite index closed 5.16% up on Friday, an increase of 191.56 to 2900.89 points.

China’s second exchange, Shenzhen, jumped 4% to 2033.61 - up 78.26 points.

The growth marks the second day of good news for the beleaguered Asian markets, which have been haemorrhaging value for almost a month.

The Chinese stock exchanges have lost more than 30% of their value since mid-June following 18 months of exceptional growth.

The government in Beijing has intervened in an attempt to prevent a complete stock market collapse amid fears the difficulties could affect the wider Chinese economy.

A package of unprecedented measures announced last weekend included provision for China’s state-backed finance company to support brokerages and fund managers in buying new stock, and the halting of the issue of new shares, or IPOs, in order to encourage more investors to buy existing stock and push up prices.

The interventions seemed to be having little effect at the beginning of the week and the Chinese authorities took further steps to stabilise the exchange.

Anyone who was found to be speculating on stocks and taking advantage of the falling market was warned they could face arrest , and a six-month ban on selling was implemented for people who own a large number of shares.

The efforts now appear to be having an impact - the Shanghai stock exchange also enjoyed an increase of nearly 6% on Thursday, balancing out a loss of 5.9% the day before.

"Market sentiment has definitely reversed significantly and started to stabilise, so it's safe to say that the state's measures have won initial success," said Phillip Securities analyst Chen Xingyu.

"However, there is still a chance for the market to see a second withdrawal (of funds) after big rises like this, but it won't be as lasting and as deep as earlier plunges.”

The International Monetary Fund also lent its support to the system, stating on Thursday that there was “no particular reason to have lost confidence" in the Chinese economy as the spillover was “likely to be small”.

The rises seem to be spilling over into other Eastern stock markets, too, with Hong Kong, Sydney and Seoul all enjoying Friday gains.