Gov't succeeds at stabilizing market, though investors remain cautious
While Friday's rally proved that the stock markets in the -Chinese mainland have stabilized -following a series of strong support measures, more fluctuations can be expected as investor sentiment remains cautious.
The Shanghai Composite Index soared 3.51 percent or 134.18 points to close at 3,957.35 points Friday, finishing the week up 2.05 percent.
The Shenzhen Component Index surged 5.24 percent or 647.35 points to close at 13,004.96 points, up 8.03 percent week-on-week. It was the first weekly gain for the Shenzhen index in five weeks.
The CSI 300 Index of the biggest companies traded in Shanghai and Shenzhen increased 3.86 percent or 154.14 points to end at 4,151.50 points, a rise of 1.09 percent from the previous week.
ChiNext, the country's NASDAQ-style board for high-tech and emerging start-ups, jumped 5.95 percent or 156.25 points to 2,783.32 points, gaining 9.76 percent for the week and marking the index's sharpest weekly gain in eight weeks.
Total turnover on the two bourses Friday reached 1.10 trillion yuan ($177.21 billion), slightly up from Thursday's 1.07 trillion yuan.
Because the July contracts of China's three major index futures were priced at considerable discounts to the spot market levels earlier last week, many were worried that stocks would suffer another heavy hit before the contracts settled Friday as futures investors tried to drive down the indexes to avoid losses.
Yet, mainland stocks rallied Friday, shrugging off earlier concerns about potential downward pressure from Friday's settlement of index futures.
Analysts generally attributed Friday's gains to the intervention of the "national team," which refers to State-backed institutional investors taking orders to buy stocks to stabilize the market.
However, there was also concern about how long the government intervention will last.
As markets recovered following a series of government support measures last week, securities regulators again started to target unregulated margin financing - money investors borrowed from non-brokerage channels to buy stocks - which is considered one of the major causes of both the recent bull run and market slump.
After an enforcement team from the China Securities Regulatory Commission visited Hundsun Technologies Inc on July 13 to investigate its fund-matching platform for providing unregulated margin financing, the company announced Thursday in a filing with the Shanghai bourse that it will stop opening new accounts on its platform and shut down all accounts with zero balances.
Margin trading levels have also fallen sharply in recent days, with outstanding margin loans shrinking to 1.42 trillion yuan Friday, down from over 2.2 trillion yuan in late June.
As regards the future, mainland stock markets will likely see more fluctuations in the short term given weak investor confidence, Datong Securities said in a research note.
In early July, brokerages pledged to buy stocks to help stabilize the markets. They also vowed not to sell their holdings as long as the Shanghai Composite Index remained below 4,500 points. Because of these factors, analysts expect the Shanghai benchmark will face great pressure at 4,200 to 4,300 points.
