Chinese Regulators Reassure Investors That Stock Market Is Stabilizing

The Shanghai Composite Index opened up neutral in the first hour of trading Monday, up 1.5 percent initially before moving fractionally lower. That could be an early sign Chinese officials' hopes the economy has stabilized since the fateful 'Black Monday' may be more than just wishful thinking. If so, investors spooked by last week's sudden plunge may be able to breathe a little easier in the days ahead.

China’s state-owned news agency Xinhua reported the China Securities Regulatory Commission is optimistic the abrupt correction has largely worked itself out, and expressed confidence checks and reforms implemented by the Chinese government will result in a more stable environment for investing.

"At present, market risks and bubbles have been released to some extent," the regulators told Xinhua.

That’s welcome news to investors who have warily watched the stock market in China, which represents the world’s second-largest economy, lose about 40 percent of its value since June, CNBC reports.

Zhou Xiaochuan, the governor of China’s central bank, echoed that outlook while addressing the Group of 20 finance ministers in Turkey during the weekend, CNBC reported. Xiaochuan said, “the correction in the stock market is already mostly over and the financial markets show hope for stabilizing."

However, not all analysts are convinced the trouble is over. Angus Nicholson of IG told CNBC an additional 10 percent decline in the Shanghai Composite Index still is possible as the government tries to extricate itself for fear of artificially inflating its value.

Officials said the most recent slide was the unfortunate consequence of an outsized market and corrective measures taken by the Chinese government had done their part to smooth over these irregularities and minimize the potential for such catastrophic risk moving forward. For example, the commission lodged heavy fines on three companies for illegal stock financing last week in the midst of the downfall.

"Gains on the stock market had been too rapid and large, forming stock market bubbles, therefore subsequent plunges and adjustments were inevitable," the commission said.

The group also reassured investors and international governments market liquidity remains high and capital is flowing freely throughout the financial system -- both good signs for those worried China may dip into a recession.

The work isn’t over yet, however -- one reform that the commission is still considering is a system that would halt the trade of stocks if the market were to enter free-fall, to protect it against dramatic drops such as that which investors witnessed last week.