China’s fresh monetary easing triggered stock market gyrations on Wednesday, with key indexes ending down for a fifth straight session after swinging more than 3 percent in both directions in extreme volatility.
A sharp mid-session rebound following a deep correction in early morning invited waves of selling in the late afternoon, underscoring fragile confidence and deep doubt over whether the central bank’s overnight cuts in interest rates and reserve ratios could stabilise the economy.
The CSI300 blue-chip index of the largest listed companies in Shanghai and Shenzhen ended down 0.6 percent, to 3,025.69, while the Shanghai Composite Index lost 1.3 percent, to 2,927.29 points.
Both indexes hit fresh eight-month lows, and have lost over 20 percent in just five trading sessions.
Volumes recovered after four days of weakness, but were not far above averages.
Some blue chips gained after attracting bargain hunting, but small-caps continued to slide, with some traders attributing the volatility to margin calls and mutual fund redemptions.
Reflecting improving market sentiment, stock index futures , which slumped 10 percent on Monday and again on Tuesday, dropped less sharply on Wednesday, after regulators restricted trading in the instruments in the latest effort to crack down on speculation.
The People’s Bank of China late Tuesday cut interest rates and lowered the amount of reserves banks must hold for the second time in two months, in an apparent move to aid the economy and the slumping stock market.
The move stimulated prices in banking and real estate stocks, sectors that investors believe will benefit the most from additional liquidity.
Major carmakers, including BYD, Dongfeng Auto and Changan Auto also rose sharply as investors bet the central bank’s supportive policies toward auto financing and leasing firms would aid car sales.
But small-caps remained under selling pressure, with Shenzhen’s start-up board ChiNext down 4.3 percent, and the CSI500 index tracking small listed companies declining 3.8 percent.
“The previous days’ slumps have triggered margin calls and forced liquidation in some stocks, which is why you see some investors dumping shares at whatever prices they can sell,” said David Dai, Shanghai-based investor director at Nanhai Fund Management Co.
Some analysts also attributed the slide in ChiNext and some other indexes to fears of massive redemption in structured mutual fund products, which have dealt heavy losses – in many cases over 70 percent – to their investors.