China Stock Markets Buoyed On New Stimulus Hopes; Factory Sector Outlook Grim

Chinese stocks surged to their biggest one-day gain in a month on Monday, buoyed by optimism over an expected continuation of state support even as commodity prices fell on poor economic news. Expectations of an enhancement of existing stimulus programs too helped push indexes up in the country.

China’s major indexes, the Shanghai Composite index and the Shenzhen Component index, showed rises of 4.9 percent and 4.3 percent, respectively, making major gains after weeks of ongoing volatility that have left the country’s investors spooked. China’s stock markets have lost roughly a quarter of their value after peaking in early June, and the country has seen ongoing volatility since then that authorities have blamed on malicious market manipulation.

“People are taking a contrarian view,” Gerry Alfonso, director of trading at Shenwan Hongyuan Securities in Shanghai, told the Wall Street Journal. “The buying [of stocks] was pretty broad,” which could imply that investors are banking on a wider comeback for the indexes, he said.

The stock market rise comes after weak economic data from the weekend raised hopes that Beijing would extend stimulus measures. Chinese producer prices hit their lowest point in July since 2009, declining 5.4 percent in July, and exports fell 8.3 percent in the same month, eclipsing a 2.8 percent rise in June. Imports also continued to fall for the ninth month running. However, more optimistic trends were seen in the country’s consumer price index, which advanced 1.6 percent in July.

Following the weak showing of trade data, several Chinese shipping companies were stopped from Monday trading, over concerns their stocks could take a major hit.

Over the past few weeks, China’s financial regulator and its major indices have taken several measures aimed at injecting liquidity into the market and quelling panic among investors. New rules were also introduced that aimed to crack down on short-selling of shares last week, prompting a 2 percent rise in the Shanghai index at the end of the week.

China Securities Regulatory Commission (CSRC) Assistant Chairman Zhang Yujun also called on Friday for increased supervision of margin trading in order to tamp down on risk. Margin trading refers to a practice that allows investors to buy shares with borrowed funds.

"Expectations of further easing are building and announcements of liberalization have boosted the equity market," Kit Juckes, a senior foreign exchange strategist at Societe Generale in London, told Reuters.