China equities rebound sharply on state enterprise reform hopes

China stock exchangesCHINA stocks, after a poor start in the morning, staged a sharp rebound in the afternoon, with fresh buying pushing main indexes up more than 1 percent.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 1.5 percent, to 5,138.83, while the Shanghai Composite Index gained 1.7 percent, to 4,967.90 points.

At one point in the morning, both indexes were down more than 2 percent. The reversal of fortune repeats a pattern seen twice over the past three weeks, where an deep fall is followed by an equally strong rebound, underlining a deadlock between the market’s bulls and bears.

Some attribute renewed investor enthusiasm to the strength in banking stocks, firm throughout the day on hopes of mixed-ownership reforms could let private shareholders play a bigger role in the management of state lenders.

Late on Tuesday, Bank of Communications (BoCom) said that its reform package has obtained regulatory approval, allowing China’s fifth-biggest lender to introduce more private capital and launch stock incentive schemes.

Investors apparently extrapolated that new to other state enterprises where reforms expected, said Gerry Alfonso, director at Shenwan Hongyuan securities Co.

“These changes will require time but, as the recent developments in the banking sector seem to indicate, are achievable.” There are signs the rebound was inflamed by investors who saw the recent correction – triggered by fears of margin tightening and a flood of IPOs this week – as buying opportunities.

Most sectors ended the day up, with sharp rebounds seen in infrastructure and tech stocks.

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