SHANGHAI: Shares in Chinese banks surged Tuesday after a government investment arm bought stakes in the country's major lenders in a move analysts said was aimed at shoring up support for the flagging market.
Central Huijin Investment, the domestic arm of China's $300 billion sovereign wealth fund, said in a statement it had bought stock in the four largest state-run banks on Monday as the Shanghai index sank to a 30-month low.
Huijin, already a shareholder, bought around 64.55 million shares combined in the Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China, the banks said in statements.
The four lenders said Huijin would continue to build its stakes over the next 12 months.
Analysts said the move would boost sentiment in the stock market but the impact might be short-lived.
"The purchase did lift market sentiment temporarily. But it is hard to say whether it can lift the market in the long-term," Zhang Qi, an analyst at Haitong Securities, told AFP.
"Unless more inflows of money go to support market heavyweights and unless investors recover their confidence, it is hard to see continued increases."
Analysts say worries over Europe's deepening debt crisis, the possibility of a US recession and China's slowing economy have dragged the stock market to the lowest level since April, 2009.
Huijin made a similar announcement in September 2008 in an effort to shore up the stock market as it was hit by the global financial meltdown.
London-based consultancy Capital Economics said the latest move would prompt "some optimism" but added China's stock market was helped last time around by a massive government stimulus package launched in late 2008.
"There is less space for a major stimulus than in 2008," it said in a report. "That being said, we think China's stock market will recover once the dust from the current turmoil in the eurozone settles."
The Shanghai Composite Index, which covers both A and B shares, opened up more than 2.0 percent on Tuesday, helped by a strong lead from US and European markets.
China Construction Bank was up 4.1 percent in morning trade, while Industrial and Commercial Bank was 2.3 percent higher.
Bank of China rose 2.4 percent and Agricultural Bank added 2.8 percent.
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