China’s equity markets endured another turbulent session Monday, with most indexes ending lower as frantic government intervention saved many larger cap stocks from losses.
Broader equity indices, such as the CSI 1000, which tracks 1,000 or so stocks across both the Shanghai and Shenzhen exchanges, fell more than 6%. The CSI 100, which tracks only 100 of the biggest stocks on both exchanges, climbed 1%. The Hang Seng index in Hong Kong fell just 0.2%.
The iShares MSCI China ETF (NYSE:MCHI) lost 1.8% on Friday, but looked set for gains on Monday as it tracks the stocks that saw the biggest benefits of government market intervention.
These included stocks such as China Citic Bank (OTC:CHCJY), which climbed 4.4%, China Life Insurance (OTC:CILJF), up 3% and PetroChina (OTC:PCCYF), with gains of 2.6%.
At one point Monday, nearly 30% of all stocks on the CSI 1000 were suspended on a limit down — having lost 10% or more.
China’s Government Intervention: Pledges Aplenty
The uneven nature of the losses surprised many, with some suspecting the authorities were targeting mainly large cap stocks. Or, that broad stimulus would unevenly benefit large caps as investors would have more confidence in their survival — thus dumping investments in small caps and switching to larger companies.
Over the weekend, China’s Securities Regulatory Commission pledged to stabilize the country’s markets, but offered no details on how this was to be achieved, other than saying it would guide more medium- and long-term funds into the market and clamp down on practices such as short selling.
Indeed, it subsequently suspended stock borrowing via exchanges for the purpose of short selling, while some investors were told not to sell their positions — mainly quant funds being unable to cut leveraged positions.
Also Read: China Stock Rout Continues: Worst Week In 5 Years For Shanghai Index
On X, the Kobeissi Letter said: “Even as China has vowed to stabilize its markets, investors are worried. Many believe that China will focus primarily on large cap stocks. Hence why there’s a huge disconnect between large and small caps now.”
Bank of America noted strong inflows into China stocks over the last two weeks: $6.3 billion last week and $11.9 billion the week before — likely from government sources as it…
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