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Chinese stocks rally again in wake of government intervention
Chinese stocks rose sharply for a second day in a row, buoyed by a series of supportive government measures, but many are still concerned over the long-term repercussions over the stability of the country’s financial markets that have seen $3.9. Trillion dollars erased in less than a month
The Asset 10 Jul 2015

Chinese stocks rosed sharply for the second day in a row, buoyed by a series of supportive government measures. But many investors are still concerned over long-term repercussions on the stability of the country’s financial markets that have seen US$3.9 trillion dollars worth of stocks erased in less than a month.

 
The Shanghai Composite Index increased by 4.54% to 3,877.80 at the close, adding to yesterday’s 5.8% gains. Trading was limited to 53% of the market, as more than 1,300 companies are still barred from trading on mainland exchanges.
 
Over the past two weeks, Beijing has cut interest rates, suspended initial public offerings, relaxed margin lending and collateral rules as well as enlisted brokerages to buy stocks, backed by cash from the central bank.
 
Some economists predict that the central bank will create new measures to continue to boost financial markets, such as another rate cut or relaxing the amount of capital banks must have in reserve.
 
Outside of China, the consensuses among analysts and economists was that Beijing’s efforts to stop the rapid selling of shares was a futile effort.
 
Analysts in Bank of America Merrill Lynch said in a research note they expected the ripple effect to eventually hit the real economy and corporate earnings.
 
“We expect this will likely hurt consumption down the road,” the note said. “More critical is a potential distortion to credit flows due to the impairment to financial institutions’ balance sheets.”
 
But as with many things, China plays against conventional wisdom, and that government policy and China's economic and financial strength will eventually put the stock market back on the right course.
 
 

 

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