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Shanghai - China’s stocks jumped the most in two weeks, reversing an earlier loss and spurring speculation that state-backed funds may be supporting the market after MSCI refused to add the nation’s domestic equities to benchmark indices. The yuan erased declines.
The Shanghai Composite Index rose 1.4% after falling as much as 1.1%. Gainers vastly outnumbered decliners, with 1 050 shares climbing on the gauge as 14 fell. The Hang Seng China Enterprises Index added 0.1% in Hong Kong. China’s onshore currency was little changed after sliding to a five-year low.
“It’s a sharp reversal so there has to be some government intervention,” said Francis Lun, chief executive officer at Geo Securities in Hong Kong. “The Chinese government never wants to see the market falling too much.”
China’s equities were rejected by MSCI despite a flurry of measures this year to address concerns, including curbs on arbitrary trading halts and looser restrictions on cross-border capital flows. Unprecedented meddling by mainland authorities during last summer’s market turmoil failed to prevent the Shanghai Composite from tumbling 43% in the past 12 months to be the worst performer among global gauges.
The Shanghai gauge traded at 2 882.12 at 07:11, while the Shenzhen Composite Index surged 2.9%. Shares in most Asian markets rebounded after mounting concern about the U.K. voting to leave the European Union pushed a regional gauge to a three-week low on Tuesday.
Wang Zheng, a Shanghai-based chief investment officer at Jingxi Investment Management, said investors are bargain-hunting after recent declines. The Shanghai Composite tumbled 3.2% on Monday, and its Wednesday low took it near the 2 800 level that’s been recently seen as the point where state funds step in to shore up equities.
“It’s possible that the national team is buying to stabilize the market,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai, who noted he hasn’t any direct knowledge whether this is happening. “The government cannot let the market continue to slump when it’s around these levels.”
MSCI said it will reconsider inclusion in its 2017 market classification review, while not ruling out an earlier announcement. The 120 Chinese stocks that are currently part of the MSCI Emerging Markets Index, a seventh of the gauge’s total constituents, all trade in Hong Kong or the US They have a combined weighting of 20% in the benchmark, which is tracked by investors with $1.5trn in assets.
