China Stocks Rally as Beijing Intensifies Effort to Calm Market

(Bloomberg) — Stocks in China and Hong Kong jumped Thursday, after authorities intensified efforts to calm fears about a crackdown on the private education industry and as the central bank pumped liquidity into the financial system.

The CSI 300 Index closed 1.9% higher, led by materials and industrial stocks. Hong Kong’s Hang Seng Index rallied 3.3%, as Meituan and Tencent Holdings Ltd. both climbed at least 9%. Technology shares extended gains after a report said China will continue to allow its companies to go public in the U.S. as long as they meet listing requirements, following Didi Global Inc.’s controversial debut.

In a bid to alleviate investor anxiety, the nation’s securities regulator convened a video conference with banking executives Wednesday night, conveying a message that education policies were not intended to hurt companies in other industries. Confidence was further bolstered after the central bank broke out of its usual pattern of daily operations to add cash. The liquidity-sensitive ChiNext gauge of stocks rose 5.3%.

The Wednesday meeting had given some reassurance to investors, said Jun Rong Yeap, market strategist at IG Asia Pte. “But whether this is just a temporary reprieve or a longer-term upward trend, the answer still lies in whether Beijing can calm investor nerves about subsequent regulatory clampdowns and the impact on the growth of domestic firms.”

The Hang Seng Tech Index surged 8%. Education firms, some of which are moving swiftly to overhaul their business to adjust to new regulations, were also higher after being heavily sold earlier in the week. New Oriental Education & Technology Group Inc. added 13% while Koolearn Technology Holding Ltd. gained 20%.

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“It’s a good relief rally after the trauma of recent days,” said Gary Dugan, chief executive officer at the Global CIO Office, noting that authorities were “trying to draw a line” under this week’s market turmoil. “International investors are bloodied by the experience and will remain suspicious that overseas quoted Chinese companies are under heavy scrutiny by policy makers.”

Wednesday’s hastily arranged meeting led by China Securities Regulatory Commission Vice Chairman Fang Xinghai was the latest sign of Beijing’s discomfort with a selloff that sent the nation’s key stock indexes to the brink of a bear market. State-run media have published a series of articles suggesting the rout is overdone, while some analysts have speculated government-linked funds have begun intervening to support the market.

However, the meeting “won’t dispel investors’ concerns completely as the regulatory policy wasn’t from CSRC,” said Daniel So, a strategist at CMB Internatioal Securities Ltd. “The PBOC’s net injection is good news to the stock market, but we still need to monitor if this would become a longer-term trend.”

Interbank borrowing costs declined after the People’s Bank of China pumped in a net 20 billion yuan ($3.1 billion) of liquidity into the financial system with seven-day reverse repurchase agreements. That was the first short-term cash addition of more than 10 billion yuan since June 30.

The yield on China’s most actively-traded contract of 10-year government bonds dropped for the first time in three days, after rising by the most in a year on Tuesday.

Steep stock market declines earlier this week were triggered by China’s shock decision to ban swathes of its booming tutoring industry from making profits, raising foreign capital and going public. It was the government’s most extreme step yet to rein in companies it blames for exacerbating inequality, increasing financial risk and challenging the Communist Party’s grip on key segments of the economy.

A front page editorial on Thursday by the Economic Daily reinforced the message that recent policies on tech and tutoring sectors were not aimed at restricting or suppressing the development of certain industries, while state-run Xinhua said China’s strengthening economy provided a guarantee and foundation for capital market development.

“Today’s rebound is encouraging, but regulatory risks have been anchored in investors’ minds,” said Margaret Yang, strategist at DailyFX. “Many investors were trapped with unrealized losses and may attempt to sell the rebound. This may weigh on near-term sentiment for HK tech firms.”

(Updates market moves throughout)

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William Murphy

William Murphy

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