China stocks up for second day

Market sentiment in China had clearly reversed on Friday, the second day that stocks surged following a month-long rout that raised concerns over the health of the world's second-largest economy.

Lifted by a government rescue plan, Shanghai's benchmark composite index gained 5.3 percent, while the CSI300 index of Shanghai's and Shenzhen's biggest listed companies added 6 percent.

The gains helped to win back some of the value lost in the last four weeks when Chinese share prices plunged by nearly a third, wiping trillions from market capitalizations and leaving investors suddenly wondering whether they should park their money elsewhere.

It was exactly that kind of thinking that the Chinese government sought to block when it banned big shareholders, meaning those holding at least 5-percent stakes, and company executives from trading their stocks for the next six months.

Other support measures included slashing interest rates, suspending initial public offerings (IPOs) and enlisting brokerages to buy stocks with cash from the central bank.

Celebration, then caution

Beijing coming to the rescue was cause for celebration for many wary investors but it also drew some criticism for undermining what many saw as a commitment from Beijing to give markets a greater role in pricing assets.

"Essentially the political decision is: to transfer the potential losses from private investors…to the state in some manner," Ashok Shah, investment director at London & Capital, told Reuters.

The rescue plan appeared to have propped up the markets for now, but they were still far from business as usual in Friday trading. China's stock markets are dominated by retail investors, adding to the volatility.

Stocks in around 1,300 listed companies in China were still suspended. Only about 60 companies were back to trading normally, but even these firms were largely propped up by state-directed buying.

cjc/ng (Reuters, AFP)