China intervened to support its stock market on Friday, helping the benchmark index cap its best weekly gain of 2016 before policy makers meet to approve a five-year road map for the economy, according to two people with direct knowledge of the situation.
State-backed funds bought primarily bank shares, while some local branches of the securities regulator asked listed companies, mutual funds and brokerages to stabilize the market during the National People’s Congress and the Chinese People’s Political Consultative Conference, said the people, who asked not to be named because the matter isn’t public, Bloomberg reported.
China’s biggest banks, seen as prime targets for state support because of their large weightings in benchmark indexes, paced gains in the $5.5 trillion market on Friday even as small-capitalization shares tumbled.
"It looks like the national team has been buying as large caps of the Shanghai index jumped, while small caps fell," said Steve Wang, chief China economist at Reorient Financial Markets Ltd. in Hong Kong.
China’s stock market has become one of the most visible symbols of anxiety toward Asia’s largest economy after a $5 trillion crash last summer rattled global investors.
Weekly Jump
The Shanghai Composite Index rose 0.5% on Friday, reversing an earlier decline of 1.8% and extending this week’s gain to 3.9%. The large-cap CSI 300 Index advanced 1.2%, while the ChiNext gauge of smaller companies tumbled 5%.
A gauge of financial stocks climbed the most among 10 industry groups. Industrial & Commercial Bank of China Ltd., the most valuable company listed on mainland exchanges, jumped 4.4% in its biggest gain in four months. Agricultural Bank of China Ltd., which has the third-largest weighting on the Shanghai gauge, surged 3.9%. Bank of China Ltd. rallied the most in three months.
Strong Support for Yuan
The yuan rose to a two-week high as China’s leaders signaled support for the currency before their biggest gathering of the year begins Saturday.
The nation’s currency and monetary policies will remain stable, People’s Bank of China Deputy Governor Yi Gang said in Beijing on Friday. The Shanghai Securities News cited him as saying that while the exchange rate references a group of currencies, it isn’t “strictly” pegged to that basket.
The yuan rose 0.28% to the dollar in Shanghai, according to China Foreign Exchange Trade System prices. It advanced to 6.51 earlier, the strongest level since Feb. 16. The currency traded in Hong Kong climbed 0.16% to 6.51. The central bank raised its daily reference rate by 0.2%, the most in almost three weeks.
Surging Debt
The National People’s Congress will set an annual growth target for this year—flagged at 6.5 to 7% by the National Development and Reform Commission. Investors are looking for details on how loss-making state enterprises can be shuttered without triggering a slump and how the government will rein in debt that’s risen to 247% of gross domestic product.
China may be trying to boost investor sentiment after Moody’s Investors Service lowered China’s credit-rating outlook to negative from stable on Wednesday. The ratings company highlighted the nation’s surging debt burden and questioned the government’s ability to enact reforms.
"One-day movements in the stock market shouldn’t be their concern," Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise,” said in Singapore. "Messing around is fairly futile and it doesn’t do anything for the economy.”
