In an unexpected turn of events, Chinese stocks experienced a notable rally, with market experts attributing the rebound to technical factors as no fresh catalysts emerged. The Hang Seng Index exhibited a rapid climb of nearly 2% within a matter of minutes, marking a significant recovery after a prolonged seven-day losing streak, which stood as the longest such decline since late 2021. Similarly, the CSI 300 Index, regarded as a benchmark for mainland shares, saw an impressive uptick of 0.8%, effectively reversing a potential loss of up to 0.7%.
Traders and market participants engaged in active speculation as the stock prices surged, with discussions revolving around the potential involvement of state-backed funds in the buying frenzy. Some traders cited a report by Caixin, released on Saturday, which indicated that China might be contemplating more robust measures to address risks stemming from local government financing vehicles. Despite the lively conjecture, Willer Chen, Senior Analyst at Forsyth Barr Asia Ltd., noted that clarity remained elusive: “Most people I spoke to were quite baffled by the move this afternoon. There were all kinds of speculations but there has been no clear explanation.”
Meanwhile, foreign investors maintained their trend of selling onshore Chinese stocks on a net basis. Tuesday witnessed an outflow of 6.4 billion yuan ($875 million), extending the ongoing record-selling streak to a remarkable 12 days. The total turnover for Chinese stocks stood at around 800 billion yuan, a figure largely in line with the monthly average as reported by Bloomberg. This movement signified the escalating anxiety among traders in response to the sustained losses observed in the Chinese stock market.
Recent weeks have witnessed a decline in investor sentiment owing to discouraging economic data, escalating deflation concerns, and a slump in the property market that is now encroaching upon the shadow banking sector, posing a potential crisis. Notably, a gauge of Chinese stocks listed in Hong Kong has registered a substantial drop of over 11% thus far in August, solidifying its status as the poorest performer among the 92 global equity indexes tracked by Bloomberg.
Brock Silvers, Chief Investment Officer at the Hong Kong-based private equity firm Kaiyuan Capital, commented on the perplexing situation: “There simply are no obvious triggers. The only potential explanation that seems to make sense is that the National Team has been active.” The Hang Seng Index ultimately concluded Tuesday’s session with a gain of 1%, while the Hang Seng Tech Index also witnessed a positive finish, rising by 2%.
The underlying cause of this market rebound remains uncertain, although it is plausible that technical factors and potential intervention combined to offer a respite to the oversold Chinese market. While government intervention is suspected to play a role, the extent to which it contributed remains shrouded in mystery. One undeniable certainty is that the course of Chinese stocks on Tuesday would have substantially differed without the occurrence of this unexpected rally.