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Stocks surge 9.5% on rescue move

By Zhou Yan (China Daily)
Updated: 2008-09-20 15:37

China's key stock index surged 9.5 percent on Friday - its biggest one-day percentage gain ever - as investors took heart from government measures and a global market turnaround.

The benchmark Shanghai Composite Index gained 179.25 points to 2,075.09 and stayed at that level all afternoon after many shares quickly hit the 10 percent upside daily limit.

None of the 1,618 stocks traded on the Shanghai and Shenzhen bourses fell, and the combined turnover amounted to 64.7 billion yuan ($9.51 billion), up 6.6 percent from the day before.

The rebound followed an announcement late on Thursday that the government had eliminated a 0.1 percent tax on share purchases, effective from Friday.

The government also called on key State-owned companies to buy back their own shares.

And it announced plans to use Central Huijin, an investment agency, to buy stocks in three major banks to help stabilize their share prices, which had plunged following Lehman Brothers' announcement that it has filed for bankruptcy.

Global stock markets roared higher on Friday after news of a possible US government plan to rescue banks from mortgage debt raised a collective sense of hope amid the world's worst financial crisis in decades.

Early on Friday, the US Securities and Exchange Commission took the dramatic step of temporarily banning short selling, the routine practice of betting against company stocks.

In Asia, Hong Kong's Hang Seng Index surged a stunning 9.6 percent to 19,327.73, while Japan's Nikkei 225 average rose 3.8 percent to 11,920.86.

On Wall Street, the Dow Jones industrial average on Friday rose nearly 400 points, up 3.62 percent, extending its 3.86 percent rally on Thursday.

London's FTSE jumped more than 7 percent on Friday, while Russia's leading stock exchanges suspended trading for a second time in several hours after stocks rose too sharply.

Both the RTS and MICEX indexes rose more than 20 percent.

The global turnaround came after the US government said it was seeking the power to rescue banks by buying distressed assets at the heart of the financial system turmoil that has brought down Lehman Brothers, Merrill Lynch and Bear Stearns. Details of the plan were still being worked out.

Zhu Haibin, an analyst at Essence Securities, said the average price/earnings ratio of A shares, now about 13 times, was a reasonable level.

Frank FX Gong, chief economist at JPMorgan Securities (Asia Pacific) Ltd, said it is rare in China for State companies to buy back their own shares and those of its listed subsidiaries, a move that will help balance market supply and demand.

China's markets have long suffered from worries over a potential glut of shares due to reforms that are producing billions of newly tradable stocks.

The Shanghai benchmark had fallen nearly 70 percent since hitting a peak of 6,124.04 in mid-October of last year.

But some analysts expressed skepticism about the long-term impact of the latest measures to bolster the market.

Investor confidence will not recover quickly after nearly a year of falling, Zhao Jianxing, an analyst at China Merchants Securities Co Ltd, said.

Jerry Lou, an analyst at Morgan Stanley Research (Asia-Pacific), warned that corrections may be ahead after Friday's rebound.

Some individual investors are doubtful about the long-term impact of the government measures.

"I will wait and see until more stimulus packages come out," a 36-year-old man surnamed Qiao in Shanghai said.