Asia Markets Headlines

China stocks end higher after a day of wild swings

China bit off more than it can chew: Strategist

China stocks witnessed wild swings on Wednesday following a 6 percent plunge in the previous session, as experts warned that it wouldn't be an easy return to good times for the market.

The benchmark closed up 1.2 percent at 3,794.11 points on Wednesday after sliding as much as 5 percent in intraday trading. The index closed down 6.1 percent at 3,749.12 points on Tuesday, its biggest daily decline since July 27.

Reuters reported that state-backed buyers came in later in the session on Wednesday to support the market.

Although the buyers, known as the "national team" and comprising state-backed financial institutions and regulators, were able to stop sudden declines in the market, investors told Reuters that the buyers were, in fact, fueling market volatility because long-term investors were sitting on the sidelines while those with a greater risk appetite attempted to time the buyers' moves.

Meanwhile, Lim Say Boon, chief investment officer at DBS Bank's wealth management arm, said the longer-term negative factors piling up against the Chinese market were "many and daunting".

"Last week, I warned investors to "brace….brace…brace" – another round of weakness in the Chinese equities market was coming," he said. "And I repeat my warning: Don't expect an easy return to good times again for Chinese equities."

He said investors should accept the likelihood of a return to the Shanghai Composite's low point of around 3,300, last struck on July 8, and possibly below.

ING analyst Tim Condon had a similar warning, saying that Tuesday's slump was likely due to an expectation among investors that Beijing would support the Shanghai market at 4,000 points.

When this failed to occur, investors rushed out, in turn stoking wider worries about a "hard landing" in China and a broad risk-off sentiment in global markets, he said.

"We also think the difficulty of managing [renminbi] expectations and stock market expectations will mean more outbreaks of hard-landing anxiety like yesterday's," Condon said in a note.

"With hard-landing anxiety joining Fed lift-off anxiety as investor sentiment swing factors we advise strapping in for a bumpy ride."

Other China market watchers attributed Tuesday's slide to traders paring expectations of more stimulus for the economy - on the back of better housing market data – and support for the stock market – after the China Securities Finance Corporation said it would not intervene further in the market unless there was unusual volatility and systemic risk.

Lim outlined his own five reasons for why there may be more pain in store.

1.Less government intervention ahead: While it was in the interest of the government to prevent a collapse in the market, it's not in its interest to fuel a rapid rebound in the market.

2.Bearish technicals: The Shanghai Composite's 50-day moving average recently cut below its 100-day moving average, signalling a loss of momentum.

3.Local investors growing wary: Local investors appear to have been shocked by the stock market falls, unusual interventions and currency devaluation. "Chinese money is more likely to be banging on the proverbial doors to get out than to get into the market," Lim said.

4.Foreign investors reassessing their stance: International fund managers who had previously been positive on Chinese equities are re-evaluating their stance towards investing in the market.The suspension of market forces - including the mass trading halts that were permitted by regulators at the peak of the selloff in July- for example, have raised concerns among overseas investors.

5.Emerging markets are tanking: Investors are scaling back exposure to emerging market assets as a whole, reflected in the performance of the MSCI Emerging Market Index, which has lost over 20 percent in the past four months. "If you were cutting weight in emerging markets, you would hardly be considering buying China," he said.

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