China stocks clawed back sharp early losses on Wednesday amid speculation that the government is putting fresh pressure on brokerages to support the market.
Nine Chinese brokerages have pledged additional funds worth over 30 billion yuan ($4.71 billion) to buy shares, the China Securities Journal said on Wednesday.
The estimates by the Journal followed Tuesday’s announcement by several Chinese brokerages that they would increase the size of their proprietary trading as weeks of turmoil in mainland markets showed little sign of abating.
After slumping as much as 4.4 per cent in early trade, the CSI300 index was down only 0.2 per cent at 3,356.67 points by lunch time.
The Shanghai Composite Index also reversed early losses of up to 4.6 per cent, and ended the morning up 0.3 per cent at 3,176.34 points.
Improving sentiment on the mainland also helped Hong Kong stocks recoup early losses.
A number of Chinese brokerages, including Guotai Junan Securities Co, Changjiang Securities and Pacific Securities, have pledged additional funds to buy shares, the China Securities Journal said, answering fresh government calls to support the wobbly stock market.
Although propping up the market could inject some calm ahead of a three-day holiday starting on Thursday to mark the 70th anniversary of the end of World War Two, some analysts say it won’t change the longer-term trend.
“Any outside intervention can only prevent systemic financial risks, but can do little to change the direction of the index,’’ said Sun Jianbo, chief strategist of Galaxy Securities.
“Bear markets always last longer than nine months.”’
China’s benchmark index is now down almost 40 per cent from its peak in mid-June, when shares started crashing from seven-year highs, partly triggered by a regulatory crackdown on leveraged trading.
On Wednesday, the market opened lower as investors were spooked by news that regulators have urged brokerages to clean up "grey market" margin lending by the end of September, a move that could strain liquidity in the market.
But a wave of buying in the late morning pushed up prices in many sectors.
Shenzhen’s start-up board ChiNext tumbled over 5 percent at one point but ended morning trading up 1.7 per cent.
Sectors including infrastructure, IT and Transportation also reversed their fortunes.
In Hong Kong, the Hang Seng index was unchanged at 21,191.10, while the Hong Kong China Enterprises Index gained 0.7 per cent to 9,521.45.
Tech and property shares were up, but energy stocks stocks were down after an overnight slump in global oil prices.