Chinese stocks staged another ridiculous late rally

Despite another late rally, Chinese stocks have finished Monday’s session mixed.

The benchmark Shanghai Composite index closed the session at 3205.99, a decline of 0.78%. Earlier in the session the index had been down as much as 3.81%.

For the month the index slid 12.49%, following a 14.34% drop in July.

While the Composite finished lower, large cap stocks were broadly higher with the SSE 50 and CSI 300 indices – largely comprising larger firms listed in Shanghai and Shenzhen – closing up 2.48% and 0.73% respectively.

As was the case late last week, both staged miraculous turnarounds in the final minutes of trade.

The SSE 50, for instance, was down more than 4% before rallying 6.84% over the final 106 minutes of trade, closing at its session highs.

The sheer scale of the bounce suggests the government was yet again responsible for the sharp turnaround in fortunes.

Underlying this point, small cap stocks were absolutely hammered despite gains for their larger rivals.

The CSI 500, an index that contains the 500 largest listed firms by market capitalisation in Shanghai and Shenzhen, fell by 3.82% while the Shenzhen Composite and tech-Heavy ChiNext indices slid by 3.06% and 4.10% respectively.

Over the weekend there were reports that China’s government may refrain from making further large scale stock purchases to stabilise the nation’s share market.

Clearly, based on the price action witnessed on Monday, this is not the case, at least in the short-term.

Chinese markets will be closed on Thursday and Friday this week to commemorate the 70th anniversary of the end of World War 2.

Given rumours the government has been looking to support stocks leading into this event, it will be interesting to see whether the late session rallies will continue.

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