China’s main stock market index staged its biggest one-day rally in five months on Thursday, with a 4.5 percent rebound that clawed back the previous session’s steep loss.
Shares in most of the rest of Asia gained on relief that a two-week battering of the Chinese market had stopped — at least for a day. The main indexes in Hong Kong, Singapore and Japan all gained at least 1.5 percent or more during the session, and indexes in Britain, Germany and France followed suit with gains of about 1 percent by early afternoon. Wall Street was also poised for a higher open.
China’s economy, and its often volatile stock market, have gained increasing power to affect investor confidence overseas. As the United States and Europe lurch toward recovery, many investors are looking increasingly to China to help lift the global economy and stoke financial markets.
China’s economy is forecast to grow at least 8 percent this year. But fears that its comparatively muscular expansion could weaken amid tighter bank lending in the second half of 2009 briefly turned the country’s main stock index into a bear market this week, clouding some of those hopes.
On Wednesday, the Shanghai composite index had closed down 4.3 percent, capping a string of sell-offs that has pushed the market down 20 percent in two weeks. Shares were bolstered Thursday by reports that the nation’s stock regulator had approved new mutual funds this week to help underpin the market.
Investors have grown increasingly worried that an asset bubble may be forming in China, fueled by $586 billion in stimulus spending and an aggressive state-directed lending program that has led banks to hand out hundreds of billions of renminbi to businesses for infrastructure projects and other needs.
The mass of easy cash has helped China’s economy expand at a 7.1 percent clip this year, and propelled a 90 percent rise in the Shanghai market. But some economists worry that the government’s quick fix has been tilted too heavily toward investment, rather than consumption, setting the stage for unbalanced growth, a surge in bad loans and mounting government debt.
“If you are worried about the pace of recovery, you are looking to see where growth is going to be,” said Quincy Krosby, a market strategist at Prudential Financial.
“To have a pullback is normal,” she said. “The question you have to worry about is, ‘Is the Shanghai market a harbinger?’ ”
Economists say Chinese banks must now think about reining in aggressive lending. The central bank called last month for tighter supervision of loans, and China’s Banking Regulatory Commission ordered banks to lift their reserve ratios for bad loans by January.
Investors around the world have also taken notice. Wall Street and indexes in London and Frankfurt are flat or have fallen since early August.
Markets in New York fell at first on Wednesday as the declines in China reverberated, but recovered to finish higher as oil prices and energy stocks surged. The Dow Jones industrial average closed up 61.22 points at 9,279.16. The Standard & Poor’s 500-stock index rose 6.79 points, to 996.46, and the Nasdaq closed 13.32 points higher at 1,969.24.
In many ways, Wednesday’s sell-off on the Shanghai stock exchange represented a natural correction after the buildup that preceded it. “I see this as long overdue, very much so. It’s a healthy development,” said Stephen Davies, chief executive of Javelin Wealth Management in Singapore.
In the United States, the Treasury’s 10-year note rose 15/32, to 101 14/32. The yield fell to 3.45 percent, from 3.51 percent late Tuesday.
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