“It’s a mixture of continuing domestic bullish sentiment for the stock market and further expectation of monetary easing,” said Nick Cheng, head of derivatives trading at Liquid Capital Markets Hong Kong Ltd. “We see the CSRC trying to intervene to cool down the speed of the rally but not to kill the rally. The record high margin finance is the biggest indication of how retail investors view the market.”
The Hang Seng China Enterprises Index added 1 percent, while the Hang Seng Index rose 1.2 percent. The CSI 300 Index advanced 1.6 percent. The Bloomberg China-US Equity Index increased 1.1 percent on Friday.
The Shanghai gauge has rallied 88 percent in the past six months, the most among benchmark indexes globally, on speculation of further monetary stimulus to bolster the economy, a record surge in margin trading and prospects for reform of state-owned enterprises. China’s state-asset regulator may cut the number of centrally administered SOEs to 40 from the current 112 through mergers and restructuring, the Economic Information Daily reported Monday, citing unidentified people.
A gauge of industrial shares in the CSI 300 rallied 3.5 percent, extending an advance over the past six months to 158 percent, the biggest gain among 10 industry groups. Avic Aircraft Co. surged 6.6 percent. China Avionics Systems Co. increased 4 percent. The domestic satellite industry will participate in the plan China Business Media reported, without saying where it obtained the information.
The Shanghai index trades at 17.5 times estimated earnings for the next 12 months, compared with an average of 11 in the past five years.
The CSRC will target trading by brokerage employees using non-public information, and market manipulation, including of futures prices, the regulator said in a Friday statement. The regulator also cited insider trading in over-the-counter markets and accounting fraud in mergers and acquisitions.
The CSRC has rolled out measures this year that signal an effort to temper gains for the world’s best-performing market and prevent another boom-and-bust cycle. This month, authorities banned a source of financing for margin trades, while CSRC Chairman Xiao Gang said new investors should be cautious and evaluate stock market risks. In January, the regulator announced a round of checks into margin lending by brokerages.
The latest crackdown comes after the Shanghai Composite plunged as much as 2.2 percent on Friday amid speculation the government would increase a stamp duty on stocks. The gauge pared losses, ending the day down 0.5 percent.