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Markets

China unveils steps to help boost stocks, sparking rally

Officials voice support following market tumble of more than 20% since start of year

HONG KONG -- Chinese stocks rallied on Friday after the government announced a series of new measures to shore up the country's battered financial markets, which are down more than 20% this year.

State-run media quoted top finance officials voicing support for struggling equities, and the head of the securities regulator said that Beijing would introduce new steps to help lift investors' confidence.

Stock market sentiment has been shattered this year over the ongoing U.S.-China trade war, slower economic growth and weak investor sentiment. On Friday, the government reported third-quarter gross domestic product grew a weaker than expected 6.5%.

The Shanghai Composite Index jumped 2.6% on Friday to close at 2,550.47. Despite the rally, the Shanghai market is still down nearly 23% this year and has lost about 50% since its peak in June 2015. The Shenzhen Composite Index also rose 2.6% on Friday.

Liu Shiyu, chairman of the China Securities Regulatory Commission, said the government will "encourage" private equity funds to purchase shares in listed companies and encourage local governments to set up new funds to "support healthy development" of promising publicly listed companies, according to the China Daily. New measures also will include a share repurchase program and market reform for mergers and acquisitions, it said.

The government "will further open up the financial market in an all-around way by encouraging foreign capital management institutions to establish legal entities for asset management businesses including stocks and other equity assets," the report said.

Other Chinese government officials on Friday added to the chorus of support.

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said that authorities would aim to steer markets toward a "normal and healthy development," according to the Xinhua News Agency. "The relatively large and abnormal fluctuations on the financial markets in recent days, a result of multiple factors, have been seriously out of line with the fundamentals of China's economic development and inconsistent with the overall stability in China's financial system," he said.

The news agency also quoted Yi Gang, the governor of the People's Bank of China, as saying that the stock market's valuation is at a historically low level and stands in contrast to economic fundamentals. He said that the central bank would "maintain liquidity at a reasonable, stable level to promote healthy and stable development of the market," Xinhua said.

Whether Friday's measures mark the beginning of sustained support for the market remains to be seen.

"Public statements of support or even various intervention measures, unless they are quite sustained, actually have very little impact," said Christopher Balding, associate professor at Fulbright University Vietnam and who previously was a professor at the HSBC Business School at Peking University in Shenzhen.

"What we would generally expect to see from these public statements is kind of what we're seeing right now," Balding told the Nikkei Asian Review, pointing to Friday's run-up in stock prices. If the statements of support are not followed up with concrete action, he said, "I think you can expect the markets to figure that out very, very quickly."

Ricky Huang, an analyst at Luk Fook Financial Services in Hong Kong, told Nikkei Markets that stocks were helped by "rescue efforts" from regulators, "but I think the boost could be very short-lived."

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