China markets on a rollercoaster ride as confidence ebbs away

Chinese stock markets took a wild ride yesterday, tumbling and soaring in a session that made little sense other than to highlight that investors have almost no faith in a month-long government effort to stabilise them.

The Shanghai and Shenzhen markets fell 3 per cent in morning trade, taking their losses to more than 8 per cent since investors stampeded without warning on Tuesday.

But state-backed buyers later rushed in, enabling stocks to finish the day more than 1 per cent higher.

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It is a pattern that has been repeated several times since Beijing’s “national team”, a coalition of state-backed financial institutions and regulators, went into action early last month with instructions to halt a crash in share prices.

Investors say China’s stock markets – which were never for the faint of heart – have become dysfunctional since the government’s massive and unprecedented rescue effort. Prices move sharply on speculation about the national team’s activities as investors focus on making quick trading profits by pre-empting its next move.

Late in the afternoon yesterday, a slew of companies announced state funds had bought stakes in them, which investors took as a sign that the government was signalling its continued support for the market. As of early evening, around 20 firms had made such announcements.

Long-term investors are staying well to the sidelines, moving their cash into bonds and the money market, as rollercoaster markets and a gloomy stream of economic news heighten their anxiety over the world’s second-largest economy. “We advise strapping in for a bumpy ride,” said Tim Condon, head of Asia research for ING Bank in Singapore.

The Commerce Ministry added to that anxiety yesterday , saying exports could continue falling in coming months, after an 8.3 percent plunge in July, their biggest drop in four months.

The economy is already under threat of deflation and policymakers are struggling to revive bricks-and-mortar investment. Beijing’s official growth target is 7 per cent for this year, but some economists estimate current levels are closer to half that.