China stocks stabilised on Thursday morning amid a slew of fresh measures to prop up the market - including a ban on listed companies' big shareholders from selling their holdings - but analysts say it's too early to cheer as the pace of deleveraging accelerates.
The Shanghai Composite index rose 1.3 per cent by midday, after dipping into negative territory several times. But the index was still down nearly 4 per cent this week. The CSI300 index of China's biggest companies rose 2.4 per cent on the day.
Sentiment about small caps , the focus of recent panic selling, improved after China's state margin lender said it was broadening its bailout buying to include them and mutual funds, rather than just blue chips.
Internet information company Leshi and East Money Information, two index heavyweights on Shenzhen's start-up board ChiNext, jumped over 8 per cent.
The market also got support from drastic measures unveiled by the securities regulator that ban shareholders with large stakes in listed firms from selling.
But some analysts say it's too early to judge if the government has successfully stemmed the slide in a market where over half of listed companies have halted trading.
"The market sees some positive signs today, but it is far from calling it a victory for the rescuers as more than half of listed companies are not trading in the market," said Du Changchun, analyst at Northeast Securities in Shanghai.
He added that the government still needs to publish new measures to counter selling pressure from investors seeking to cut their risk exposure.
Reflecting continuous selling pressure, Chinese stock investors slashed margin loans from brokerages by nearly 30 percent over the past three weeks, unwinding over $100 billion worth of leveraged bets.
During the first two days of this week, investors unwound 286.3 billion yuan of margin positions, even after 21 Chinese brokerages pledged to set up a 120 billion yuan fund to buy blue chip stocks.
Most sectors rebounded on Thursday morning, except for banks. The CSI300 banking index dropped 1.3 per cent.
Index futures , which fell by their 10 per cent daily limit on Wednesday, also bounded sharply, with a instrument tracking the CSI500 index for small caps jumping 10 per cent, the upward limit.
The rebounding China market helped Hong Kong.
The Hang Seng index added 3.4 per cent, to 24,322.23 points. The Hong Kong China Enterprises Index gained 3.6 percent, to 11,504.61. Brokerages listed in Hong Kong rebounded sharply.
On Wednesday, the Hong Kong market suffered its biggest one-day drop since October 2008.
"The market has been oversold after the recent selloff, and local investors calm down a bit in view of a relatively stable mainland markets so far this morning with short covering giving support," said Ben Kwong, a director of KGI Asia in Hong Kong.
"On the Greece crisis, people are expecting that there will be an agreement, while China's inflation data also gave support to a rebound in the market," he said.