China's main stock index rose 2.11 percent on Monday, climbing for the fifth straight day and touching the 4,000-point level for the first time since a hike in the share trading tax last month triggered a plunge. The Shanghai Composite Index closed at 3,995.680 points nears an intra-day high of 4,000.416. Rising Shanghai stocks outpaced losers by 575 to 277.
The index, which plunged as much as 21 percent after authorities hiked the stock trading tax on May 30, is now just 8 percent below its record intra-day high of 4,335 hit on May 29. Turnover in Shanghai A shares was 177.3 billion yuan ($23.2 billion) on Monday, roughly flat from Friday but below levels of well over 200 billion yuan at the height of a bull run in May.
Analysts said the market's recovery showed investor confidence had largely returned after the plunge, but somewhat lower turnover suggested authorities had succeeded in cooling wild speculation with the tax hike. Many investors think the government would not welcome any rapid rise of the index above 4,000 points and could act again if it feels trade is becoming overheated.
So the market could pull back moderately from 4,000 if May consumer price inflation data on Tuesday is poor. Even if the index breaks above 4,000, further gains towards the record high are likely to slow, traders said. "The market's confidence has recovered since the economy is still moving forward at a fast but steady pace," said Yuan Xuya, senior analyst at Minsheng Securities. "But 4,000 points is a crucial benchmark, where investors may stop to think whether the possible interest rate hike will slow the market down."
May inflation is expected to come in at 3.4 percent, the highest in more than two years. This may prompt an interest rate hike in coming days or weeks which could dampen the market moderately, especially if deposit rates are again raised more than lending rates, cutting into banks' lending margins.
The market was boosted on Monday partly by news at the weekend that regulators gave approval for Hating Securities, a medium-sized broker, to list by merging with Shanghai Urban Agro-Business Co, which already has a listing.
It was the first official approval of a backdoor listing by a Chinese brokerage, and was taken as a positive sign that authorities remained committed to strengthening the market. Shanghai Urban jumped its 10 percent daily limit to 52.38 yuan. Insurers and smaller banks were also strong after China Life Insurance and Ping Insurance said they had finished arranging previously announced purchases of 4.93 percent stakes in Mincing Bank.
Mincing surged 5.80 percent to 11.31 yuan, as China Life climbed 3.02 percent to 36.82 yuan and Ping A jumped 5.66 percent to 62.53 yuan. Stocks related to the southwester city of Changing were strong after the official People's Daily reported that the National Development and Reform Commission, the country's top economic planning agency, had chosen Changing and Changed to spearhead reforms to reduce the rural-urban wealth gap.
Details of the reforms were not given, but there was speculation that the central government would divert more resources to the cities to assist the reforms. Changing Ganglia jumped the 10 percent daily limit to 13.28 yuan, and Changing Road climbed 10 percent to 17.04 yuan. Real estate firm Shanghai Shimano rose 10 percent for the third straight day to 21.51 yuan after Shimano Property Holdings said it would inject 6.7 billion yuan worth of property assets into it in exchange for shares.