Chinese investors got a reprieve Thursday, as stocks rose after a series of market-propping government measures. The upward tick defied the trend of recent weeks, when the Chinese market has dropped 30 percent and causing concern on global markets.
On Thursday, the main Shanghai index finished the day 5.8 percent higher. Shares in Shenzhen gained 3.8 percent.
Even so, warnings persist that mainland markets have further to fall. Valuations of many small companies remain too high, putting pressure on those stocks. And big investors are likely to stick with larger companies, which are considered safer.
The volatility presents a challenge for the leadership, which has moved aggressively to prop up stocks. The government, in part, wants to help restore momentum, lest the market slump weigh on confidence and economic growth.
“Once investors see a rebound in China’s real economy, confidence may return,” said Li-Gang Liu, chief economist for greater China at the Australia and New Zealand Banking Group.
While economists are divided over how big an impact the market malaise will have on China’s economy, many argue that it will hurt consumer sentiment and limit the amount the middle class is willing to spend on goods and property. That would weaken consumption at a time when China’s economic growth is already slowing.
According to an estimate by HSBC, about 15 percent of the assets of Chinese households are locked up in the stock market. Many are probably still holding shares whose values are quickly diminishing.
Often, investors are unable to sell the stocks because trading has been suspended. Shares of more than one-third of the companies listed in Shanghai and Shenzhen have been halted, in part because of rules intended to limit price declines and put a check on panic selling.
“These kinds of administrative measures are continuing, and over all they will only have a limited effect,” Liu said. “The rules can probably stop the market rout temporarily, but it won’t change the overall fundamentals.”