Chinese shares soar after stimulus measures

<p>Chinese markets seem to have reversed their downward trend.</p>

Chinese stock markets continued their journey upwards today (July 10th), following yesterday's sharp rebound after three weeks of continued losses that wiped out £1.5 trillion.

Drastic government measures introduced this week to stop the slide have now started to have an impact.

The Shanghai Composite soared 5.1 per cent to 3,899.02 after ending the previous session 5.7 per cent higher. Hong Kong's Hang Seng was up 2.3 per cent to 24,958.88.

The China Securities Regulatory Commission said on Wednesday that it was banning investors holding more than five per cent of a company's shares from selling any of their holdings for the next six months, according to the Xinhua news agency. 

Other measures introduced earlier include a ban on short-selling, a suspension of initial public offerings, and the injection by 21 brokerages of 128 billion yuan (£13 billion) into a stabilisation fund to support the market. About 57 mutual fund houses were also reported to have started buying equities using 2.16 billion yuan of their own money.

Analysts say this could backfire

Chinese authorities also cut interest rates for the fourth time since November and relaxed margin lending rules.

State authorities have even blamed this economic instability on calculated “foreign forces", with China's financial regulator saying it will investigate suspected market manipulation, and be looking into whether parties were mis-selling financial products.

However, many analysts believe that the market was autocorrecting. The Shanghai stock market has more than doubled over the past year, even though economic fundamentals do not justify the rise. 

But the strong moves by the government to restore order in the market could backfire, according to Evan Lucas, market strategist at trading firm IG, quoted by the Financial Times: "[Its] firm response to the past 18 days of turmoil does "create perceptions that further liberalisations and free market principles will be abandoned as Beijing grapples with additional regulations".

"This will create longer-term issues," he added.

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