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Market Confidence Grows in China After Two-Day Rally

Confidence is strengthening in the Chinese market after two days of gains of more than 1 percent.

China
AP
China

The Shanghai Composite Index rose 1.04 percent to end at 2154.92 on Monday, spurred by the rally in regional markets and China's plans to introduce the employee share scheme. Turnover was 30 percent higher than that of the previous session.

China's stock regulator is considering a scheme under which listed companies can buy back shares and use them pay up to 30 percent of wages and bonuses for staff, its latest move to help boost the country's sagging stock market.

In draft rules published over the weekend, the China Securities Regulatory Commission said the shares issued to staff would have to be bought on the secondary market, which would support stock prices, and staff must hold the shares for at least 36 months.

Market Factors:

Loss-making companies' (known as ST, or Special Treatment) shares may rise after the Shanghai Stock Exchange said it will will adjust plans for the risk warning board, especially the controversial 1 percent upside limit, but 5 percent downside limit, which some analysts have called too harsh.

Stocks to Watch:

Vanke - China's top listed developer posted 3.73 billion yuan ($590 million) in first-half net profit, up a better-than-expected 25.1 percent versus a year ago, while revenue surged 53.7 percent. The company's unrecognized contract sales reached 146.4 billion yuan ($23 billion), equivalent to more than a year's revenues.

China Life Insurance - China's largest life insurer warned of a significant drop in first-half net profit due to lower investment returns, but said that the fall is likely to be less than 29 percent, which was the extent of first-quarter profit's decline.

Coming Up This Week:

TUESDAY: Australia Interest Rate Decision, Australian Home Loans, Japanese Adjusted Current Account
WEDNESDAY: New Zealand Unemployment Rate, Japanese Core Machinery Orders, Chinese Consumer Price Index, Chinese Producer Price Index (PPI), Australian Unemployment Rate
THURSDAY: Japanese Interest Rate Decision, Bank of Japan Press Conference, Japanese Household Confidence, Chinese Retail Sales, Chinese Fixed Asset Investment, Chinese Industrial Production, Indian Manufacturing Output, Indian Industrial Output, South Korean PPI, Australian Monetary Policy Statement, Singaporean National Holiday
FRIDAY: Japanese Industrial Production, Bank of Japan Monthly Report, Indian Bank Loan Growth

—By Cheng Lei, Special to CNBC.com; Reuters contributed to this story