Shanghai bourse surge hits 4-yr high

Boosted by news of supportive measures addressing the benchmark interest rate, a share stabilization fund and new monetary policy tools to support bourses, the A-share market rallied strongly on Tuesday, with upward momentum expected to continue in anticipation of more long-term capital inflows, experts said.

Their comments were made on Tuesday when the benchmark Shanghai Composite Index closed up 4.15 percent, the largest single-day gain in over four years. With this, the SCI regained its 2800-point threshold to close at 2863.13 points. The Shenzhen Component Index jumped 4.36 percent while the tech-heavy ChiNext in Shenzhen, Guangdong province, ended 5.54 percent higher. The combined trading value on the Shanghai and Shenzhen bourses surged 76.3 percent from a day earlier to 971.3 billion yuan ($138.1 billion).

The stock market's bullish rebound came amid a series of supportive measures announced during a news conference on Tuesday.

Pan Gongsheng, governor of the People's Bank of China, the country's central bank, announced a 50-basis-point cut for the reserve requirement ratio in the near term. This will free up about 1 trillion yuan of long-term capital inflow into the financial market, Pan said at the conference.

Meanwhile, the central bank will establish a swap program under which securities firms, asset managers and insurers can obtain liquidity from the central bank through collateralization of their financial assets such as bonds and stock exchange traded funds. The program, which serves as the first structural monetary policy tool introduced by the PBOC to support the capital market, will significantly enhance these financial companies' ability to acquire funds and increase their share holdings, he said.

The funds obtained from the program can only be used to invest in the stock market. The first phase of the program is set at 500 billion yuan, with the scale open for expansion, Pan said.

The PBOC governor also said at the Tuesday conference that financial regulators are studying the possibility of establishing a stock market stabilization fund.

Wu Qing, chairman of the China Securities Regulatory Commission, the country's top securities watchdog, said at the Tuesday briefing that they will come up with a guideline to introduce more medium to long-term funds into the capital market.

Fan Jituo, chief strategist at Cinda Securities, said that the supportive policies for the stock market have exceeded market expectations, which will usher in more innovative tools and even an easing cycle.

Chen Guo, chief strategist at China Securities, said that the supportive policies collectively announced by the country's top financial regulators may indicate more significant policies.

The A-share market will see its risk appetite improved in the first place, thanks to the clear signals sent lately. Market liquidity will also improve as incremental capital inflow can be anticipated, Chen said.

Six measures to advance mergers and acquisitions as well as restructuring among A-share companies will be introduced. A guideline for listed companies' market valuation management will be introduced and open for public opinions soon, said Wu.

The central bank will also create a special re-lending facility to guide banks to provide loans to listed companies and their major shareholders for buybacks and increasing shareholdings, Pan said.

Xu Fei, an analyst at Wanlian Securities, said the ecosystem of the Chinese capital market will further optimize amid regulators' efforts to improve companies' quality and investment value. More long-term capital will be introduced in such a scenario. Market confidence will also be boosted along with the number of supportive macroeconomic policies, he said.