Chinese stocks rally most since 2016 as state steps up support

Chinese stocks jumped the most in more than two years after top officials moved to shore up the economy and offer support to the struggling private sector.

The Shanghai Composite Index surged 4.2% at the midday break, the biggest advance since March 2016 and extending Friday’s 2.6% gain. Brokerages led the advance as about 99% of companies listed on the gauge rose. Volatility is surging despite the gains; a gauge of 10-day price swings is the highest since March 2016.

President Xi Jinping vowed “unwavering” support for non-state firms over the weekend, the country’s stock exchanges committed to help manage share-pledge risks, and the government released a plan to cut personal income taxes. That follows a rare coordinated effort from top financial officials on Friday to support the battered equity market.

“This rebound is very comforting, a warm current in winter’s frigid waters,” said Weining Chen, a fund manager at Miyuan in Beijing. “The remarks and polices since Friday are seen as an ample dose for now. But there are still expectations that the authorities will not stop here because the economic figures are still not looking optimistic.”

Officials are facing a complex situation. The stock market has been plagued by concern that margin calls will exacerbate losses in one of the world’s worst performing global benchmarks this year. Third-quarter growth figures showed China’s economy expanding at the weakest pace since the depths of the global financial crisis in 2009. Comments by US officials suggest relations with the US will only deteriorate.

Shares of securities firms, which are among the biggest lenders to private firms trading on the mainland, surged onshore and in Hong Kong. Moves by authorities to reduce stock-pledge risks should stabilise the equity market and help lift valuations for Chinese brokers, according to Goldman Sachs Group. Shares of Orient Securities, Citic Securities and Huatai Securities rose at least 8%.

Consumer-related shares climbed amid expectations personal income tax cuts will give China’s citizens more spending power. Liquor maker Luzhou Laojiao rallied 6.7%.

“There is some sincerity in the tax deduction policies and the news on relief funds over the weekend,” said He Qi, fund manager at Huatai Pinebridge Fund Management in Shanghai. The policies “may serve the purpose of providing a golden window of opportunity for a rebound before the end of the month.”

Hong Kong shares also climbed, with the Hang Seng Index rising 2.3%. Geely Automobile was the top gainer with a 10% advance, paring its loss this year to 43%.

The yuan fell 0.1% to 6.94 per dollar. US Treasury Secretary Steven Mnuchin said he’s open to changing how the US determines which nations are gaming their currencies, after refraining to labeling China a currency manipulator in a semi-annual report last week.

The 10-year government bond yield rose 3 basis points to 3.6%, the biggest increase since August 17.

� L.P