China's Stocks Cap Biggest Selloff Since

2008 on Rescue Doubts

Bloomberg News

Bloomberg.com | 2015-08-31T01:31:57.120Z
Chinas stocks fell, capping the benchmark indexs biggest two-month tumble since 2008, amid concern that government intervention to prop up the
market will fail.

The Shanghai Composite Index dropped 0.8 percent to 3,205.99 at the

close. The gauge lost 12 percent this month after sliding 14 percent in July.

The SSE 50 Index of the nations biggest stocks rebounded 6.7 percent from
its intraday low. Citic Securities Co. slid 5 percent after Xinhua News

Agency said executives were detained on suspicion of insider trading and

the securities regulator was said to order the brokerage industry to boost
its contribution to the nations market rescue. Bearish bets in the options

market climbed as traders weighed the level of state support before a

World War II victory parade this week.

The Shanghai Composite closed near its highest level of the day for the

third straight session amid speculation state-backed funds are using afternoon share purchases to bolster the market before the parade, which the

government will use to demonstrate its rising military and political might.

Swings in Chinese markets this month have rattled investors worldwide as

they struggle to anticipate policy actions in the worlds second-largest
economy.

Limited Disclosures
There is a lot of confusion about purchases of stocks by state-linked

funds, said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co.

in Shanghai. Disclosures are very limited so it is impossible to know what

they are doing with certainty.

The CSI 300 Index rose 0.7 percent after slumping as much as 4.1 percent
earlier. Hong Kongs Hang Seng China Enterprises Index fell 0.1 percent.
The Hang Seng Index rose 0.3 percent.

The government revived its intervention in equities on Thursday to halt the

biggest selloff since 1996. The effort to support markets was part of a

broader push to ensure nothing detracts from the parade. Chinas financial

markets will be shut Thursday and Friday to commemorate the event. Hong
Kongs bourse will be closed on Thursday.

It look like that the government is buying shares today, said Li Jingyuan,
general manager of the securities investment department at Shanghai

Zhaoyi Asset Management. They still want to stabilize the market at this
level.

The Shanghai gauge will stabilize in a range between 2,700 and 3,000,

David Gaud, senior fund manager at Edmond de Rothschild Asset Management, wrote in an e-mail. Forced intervention amid the market sell-off in
July now looks counter-productive, he wrote.

Stock Support
Chinas securities regulator asked brokerages to step up their support for

share prices by contributing 100 billion yuan ($15.7 billion) to the nations
market rescue fund and increasing stock buybacks, according to people

familiar with the matter. The China Securities Regulatory Commission gave
the order at a meeting with representatives of 50 brokerages on Saturday,

which CSRC Chairman Xiao Gang also attended, said the people who asked
not to be identified because the meeting hasnt been made public.

Four executives of Citic Securities, the nations largest brokerage, a jour-

nalist at business magazine Caijing and a staff member at the CSRC all confessed to alleged stock-related crimes, Xinhua said.

Haitong Securities Co. declined 5.4 percent, while Western Securities Co.
slumped 5.2 percent.

Stocks also fell on concern the economic slowdown is hurting earnings.

Gree Electric Appliances Inc., Chinas largest manufacturer of air-condi-

tioners, dropped 5.4 percent after saying its first-half net income rose 0.05
percent from a year earlier. Gauges tracking consumer, material and technology companies slid at least 1.1 percent on the CSI 300.

The statistics bureau is due to release an official manufacturing index for

August on Tuesday. The gauge, known as the Purchasing Managers Index,

probably fell to 49.7 from 50 in July, according to the median estimate of a

Bloomberg survey. A reading below 50 indicates contraction.

Investor sentiment is getting increasingly pessimistic. Puts that pay out on

a 10 percent drop in the China 50 exchange-traded fund cost 9.3 points

more on Monday than calls betting on a 10 percent gain, according to

implied volatility data on one-month contracts. As recently as Aug. 24, the

bullish contracts were more expensive. For the U.S.-listed Deutsche

X-trackers Harvest CSI 300 China A-Shares ETF, the skew reached a record
38 points on Aug. 27 and closed the week at 28 points.
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