Chinese stock markets took a wild ride on Wednesday, tumbling and soaring in a session that made little sense other than to highlight that investors have almost no faith in a month-long government effort to stabilise them.
The Shanghai and Shenzhen markets fell 3 per cent in morning trade, taking their losses to more than 8 per cent since investors stampeded without warning on Tuesday.
But state-backed buyers later rushed in, enabling stocks to finish the day more than 1 per cent higher.
It is a pattern that has been repeated several times since Beijing's "national team", a coalition of state-backed financial institutions and regulators, went into action early last month with instructions to halt a crash in share prices.
Investors say China's stock markets - which were never for the faint of heart - have become dysfunctional since the government's massive and unprecedented rescue effort.
Prices move sharply on speculation about the national team's activities as investors focus on making quick trading profits by pre-empting its next move.
Late in the afternoon on Wednesday, a slew of companies announced state funds had bought stakes in them, which investors took as a sign that the government was signalling its continued support for the market. As of early evening, around 20 firms had made such announcements.
Long-term investors are staying well to the sidelines, moving their cash into bonds and the money market, as roller-coaster markets and a gloomy stream of economic news heighten their anxiety over the world's second-largest economy.
"We advise strapping in for a bumpy ride," said Tim Condon, head of Asia research for ING Bank in Singapore.
The Commerce Ministry added to that anxiety on Wednesday, saying exports could continue falling in coming months, after an 8.3 per cent plunge in July, their biggest drop in four months.
The economy is already under threat of deflation and policymakers are struggling to revive bricks-and-mortar investment. Beijing's official growth target is 7 per cent for this year, but some economists estimate current levels are closer to half that.
Combined exports and imports for the first seven months of 2015 fell 7.2 per cent from the same period last year, compared with Beijing's full-year target of 6 per cent growth.
"The possibility of exports to see year-on-year decline in some months could not be ruled out. But we will still see export growth for the whole year," Commerce Ministry spokesman Shen Danyang told a regular monthly briefing.
"For the whole year, the foreign trade will face more severe situation than we expected."
Only last month, the ministry predicted exports would improve in the second half of this year from the first half.
Central bank injects liquidity
The Shanghai market closed up 1.2 per cent and Shenzhen jumped 2.2 per cent. The benchmark CSI300 index, comprising blue-chip stocks from both markets, rose 1.6 per cent.
The rebound followed news the central bank would offer more medium-term funds to banks, in addition to a 120 billion yuan ($19 billion) injection of funds into money markets on Tuesday.
The central bank confirmed later in the day it lent 110 billion yuan of six-month cash to help maintain sufficient liquidity in the market.
Sources familiar with the medium-term funding plan said this would help offset the drain on liquidity caused by China's unexpected devaluation of the yuan last week.
The prospect of further weakening has prompted investors to swap yuan into US dollars.
Capital outflows from China are expected to increase as investors grow more pessimistic over the outlook for the currency and the economy, and calls are growing for the People's Bank of China (PBOC) to roll out support measures more swiftly and aggressively to shore up growth.
Highlighting growing anxiety, money-market interest rates ticked higher on Wednesday, despite the fresh fund injections from the central bank. The weighted average benchmark seven-day repurchase agreement rate rose four basis points to 2.53 per cent.
The PBOC devalued the currency on August 11, within a few days of the poor July export data and other official figures showing factory-gate prices continued their three-year slide in July, touching a six-year low.
A week later, the central bank is still struggling to control the fallout. Though it insists the yuan has no reason to fall further, most economists believe there is political pressure to let it slowly slide, which will put more competitive pressure on China's export-reliant Asian neighbours.
The yuan has fallen 3 per cent against the dollar since the eve of the devaluation, but that marks only a partial reversal of its gains over the past 12 months, especially against currencies of major trading partners Japan and the euro zone.
Bank of America Merrill Lynch said on Wednesday the yuan could be allowed to depreciate to 6.5 to the dollar by the end of this year and 6.9 by end 2016, from around 6.40 now.
The devaluation last week triggered falls in other Asian currencies such as those of Australia, New Zealand, Indonesia, Singapore and Taiwan, fuelling fears of a currency war.
On Wednesday, Vietnam devalued the dong for the third time this year as authorities sought to support a languid export sector facing fresh challenges from the Chinese devaluation.
($1 = 6.3993 Chinese yuan)