Stocks firm up as new pledges lift sentiment

Market regulator vows more measures to enhance liquidity, boost M&As and share buybacks

China's A-share market remained weak on Tuesday, losing as much as 0.8 percent in early trading, but managed to rebound after the securities regulator pledged to enhance market liquidity.

The benchmark Shanghai Composite Index closed 1.02 percent higher, at 2568.05 points, after Monday's 2.2 percent drop. The CSI300 index ended 1.1 percent higher at 3110.26 points after falling 3 percent on Monday.

The China Securities Regulatory Commission announced on Tuesday it would take measures to enhance market liquidity, and encourage share buybacks as well as mergers and acquisitions among listed firms, the latest in a string of official statements aimed at stabilizing markets and boosting investor sentiment.

While it will strengthen listed companies' corporate governance, the commission said it will "reduce unnecessary intervention in trading", make regulatory moves more predictable and encourage various institutions, such as insurers, to enter the market.

Dong Dengxin, head of the financial and securities institute at the Wuhan University of Science and Technology, said the statement, especially the claim the commission will reduce intervention, is conducive to stabilizing the market.

"The market has focused on that claim, which represents the right direction of regulation and is very important for promoting a fair trading system," he told the Securities Times.

China has recently encouraged listed companies to buy back their shares to bolster prices.

Ping An Insurance (Group) announced on Monday it plans to repurchase a total of no more than 10 percent of its publicly issued domestic and overseas shares, after tumbling by 5.4 percent in the A-share market to close at 62 yuan ($8.90) per share that day.

On Tuesday, its share price surged by more than 4 percent in intraday trading but weakened to close 1.29 percent higher.

Ping An Insurance said shareholders require more time to deliberate the repurchase proposal, and details such as the price, type and timing remain unsettled. However, analysts believe the move will boost investment morale, as it could encourage more listed companies to resort to buybacks to bolster their stock prices.

The Shanghai index has tumbled 28 percent since January. Its decline has accelerated this month, dropping to 2449.20 points on Oct 19, the lowest in more than three years.

The falling stock prices have been attributed to investor concern about the growing risks associated with stock pledging, whereby companies secure loans by using shares as collateral.

But "considering the recent policies aimed at mitigating the liquidity risk of stock pledging, we do not view stock-pledge debt as a systemic danger", said Gao Ting, head of China strategy at UBS Securities.

Consumer-related stocks led the decline in the domestic market this week.

"We believe that the recent sell-off of consumer-related stocks was mainly due to revisions of investor expectations regarding consumer sector fundamentals next year. In addition, some domestic institutional investors decided to take profits (in relative terms) as the year-end performance review approaches," Gao said.