For Immediate Release
Chicago, IL - September 02, 2015 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the PetroChina Co. Ltd. ( PTR ), China Eastern Airlines Corp. Ltd. ( CEA ), Yingli Green Energy Holding Co. Ltd. ( YGE ) and China Southern Airlines Co. Ltd. ( ZNH ).
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Here are highlights from Tuesday's Analyst Blog:
China Stocks Under Pressure by Beijing's Latest Move
China's markets suffered losses for three successive days last week, partly because of the cessation of stock purchases by government-backed funds. This was a significant move, given that share purchases on a massive scale had been one of the key measures adopted by China's authorities to boost stocks.
The country's markets have been plagued by a consistent downtrend since mid-June. Concerns about a slowdown in China's economy and its effect on earnings have been aggravated by consistently disappointing domestic economic data.
Massive Share Purchases
A consortium of funds and institutions backed by the state, have together injected nearly $200 billion into the markets over the last two months. This was part of the efforts made to prop up markets which are down more than 37% since the high touched in mid-June.
Leading these efforts was China Securities Finance Corp., which has received around $483 billion from the government to purchase shares in an effort to boost a flagging market. According to exchange filings, most of its positions have been built up in larger companies.
Railways have been a particular favorite for the state sponsored fund, followed by healthcare, food and tech stocks. According to reports, it has invested around $32 billion in mutual funds. On the whole, it has become a major market player.
However, according to the Financial Times, senior officials of the country's regulators now believe that these efforts have been inappropriately implemented. This is because an excessive amount of information had been disclosed publicly.
Going forward, attempts to boost markets through share purchases will be ceased. Instead, officials will concentrate their efforts on identifying individuals who have worked to destabilize the markets. Suitable punishment will be meted out to those who have been identified as the guilty parties.
Last week, the China Securities Regulatory Commission asked senior functionaries at 19 stock and futures exchanges, brokerages and government run industry associations to intensify their scrutiny of markets.
Additionally, the securities regulator has asked the police to look into 22 cases of market manipulation, insider trading as well as situations where market rumors have caused significant damage to the bourses. Meanwhile, four additional brokerages are also being investigated by regulatory authorities.
Police has already acted against 11 people suspected of market related irregularities following the 22% drop in China's stocks over four days. Officials have also opined that foreign investors have destabilized markets.
Last Tuesday, petroleum giant PetroChina Co. Ltd. ( PTR ), which is believed to be a favored company of funds created by the state to support markets, sunk below the lowest point since December. Over the last five days, the likes of China Eastern Airlines Corp. Ltd. ( CEA ), Yingli Green Energy Holding Co. Ltd. ( YGE ) and China Southern Airlines Co. Ltd. ( ZNH ) have lost 9.6%, 14.8% and 11.3% respectively.
Boosting Stocks Ahead of WWII Parade
By last Thursday, a measure of 50-day volatility had increased to its highest point in 18 years this week. This was a result of indications that China's government had withdrawn measures taken to prop up the equity markets.
However, the Shanghai Composite rebounded last Thursday, gaining 5.3% as stocks surged during the last 45 minutes of the trading day. This was partially due to a resumption of share purchases by China Securities Finance Corp.
On Friday, senior government functionaries said the country's local funds will begin investing 2 trillion yuan ($313.05 billion) in stocks and other securities. The benchmark index surged 4.9% following this statement and other indications that the government was again providing support measures.
Exception, Not Rule
However, officials and traders commented that these efforts were only intended to boost sentiment ahead of a major military parade to be held this week in China. The parade is being held to mark the 70th anniversary of the "victory of the Chinese people's war of resistance against Japanese aggression."
Senior functionaries at financial regulatory bodies have confirmed that this was an exception. Going forward, the purchase of shares on a large scale will not take place. Despite losing 0.8% and 1.2% on Monday and Tuesday, the benchmark finished at the highest level on the day for four consecutive days.
Debate on Intervention
Ultimately, the events of the last few days are indicative of the dilemma which China's government faces. The major question is about how to strike a middle ground between ensuring that the market has a greater role and the need to shore up the markets and the economy.
Despite the fact that market watchers are unsure about whether further market intervention will take place, it is likely that intervention will decline going forward. Recent flight of foreign capital had led to the IMF asking China to withdraw such measures. The country's government is looking for the international body to provide its endorsement to the yuan as a reserve currency.
Given this goal and the need to open up the economy, it seems the reformist bloc of the policymakers has an upper hand at this point. This is why it is likely that market intervention may continue to be minimal going forward.
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