Govt effort aids jump in market

Dozens of companies resume trading as biggest two-day rally in seven years brings some relief

Listed companies on Friday rushed to resume trading of their shares as the Chinese stock market rebounded strongly in response to a widened government effort to stem a massive 30 percent market decline.

A total of 66 stocks resumed trading as companies feared being left out in a market rally that pushed the benchmark stock index to its biggest two-day gain since 2008, according to media estimates.

The Shanghai Composite Index on Friday surged 4.5 percent to close at 3,877.8 points. More than 1,300 stocks jumped to the 10 percent trading limit.

Some analysts frowned upon the "willful and unrestrained" trading suspension and resumption by listed companies, expressing concerns about whether they are justified doing so simply to avoid market turbulence.

Trading of more than 1,300 stocks, nearly 50 percent of the A-share market, remained suspended on Friday. Current suspensions have locked up value of $2.4 trillion, or 36 percent of the market capitalization, according to Bloomberg.

Li Shaojun, chief strategist at Minsheng Securities, said that investors should be cautious about the impact of the massive trading resumptions, as market liquidity will be under pressure.

On Friday, the China Securities Regulatory Commission said that there will be no initial public offerings in the short term after the market experienced an "irrational sell-off".

"But the IPO approval process has not been suspended," CSRC spokesman Deng Ge told a news conference. "The regulator will only substantially reduce the number of IPOs and the value of funds to be raised."

The CSRC also confirmed that it has drafted plans that require major shareholders and senior executives of listed companies to stabilize share prices of their companies through means including increasing share holdings and implementing employee stock option plans.

A total of 655 listed companies have announced they would buy back shares, according to Deng.

While the worst seems to have passed, some analysts warned that the market has not fully recovered.

"I think the market is still suffering a 'hangover'," Lei Mao, an assistant professor of finance at Warwick Business School of the University of Warwick in the UK, wrote in a research note.

"The deleveraging will go on and it will take a long time. The price distortion created by the regulator's actions also need a long period before they are cleared," he said.

Economists surveyed by Bloomberg estimated that the stock plunge will likely trim at least 0.1 of a percentage point from China's third-quarter GDP growth, and the impact may prompt the People's Bank of China to accelerate monetary easing.

Zhang Zhiwei, chief economist for Greater China at Deutsche Bank, said that the A-share market is not undervalued despite the recent dramatic fall.

The price-earnings ratios of many stocks remain excessively high, which could increase the potential cost of government intervention to prop up the market, Zhang said.