China’s stocks capped their longest stretch of gains in almost two months, as smaller companies extended a bull-market rally and speculation grew the government’s market-support measures have contained excessive price swings.
The Shanghai Composite Index advanced for a fourth day, finishing above 4,000 for the first time since July 1. It rose 0.6 percent to 4,017.68. The ChiNext small-caps gauge, dominated by technology and new economy stocks, rose 1.2 percent, adding to a rally of more than 20 percent since the July low. A total of 543 companies were suspended on mainland exchanges, or 19 percent of all listings, down from 576 at the close on Monday.
The benchmark gauge has rebounded 15 percent since July 8, following a month-long rout that wiped out almost $4 trillion, as policy makers introduced a spate of measures to bolster equities. The Shanghai index on Monday posted the smallest price swings since the rout began.
“The 4,000 level is a key battlefield for bulls and bears,” said Li Jingyuan, general manager of the securities investment department at Shanghai Zhaoyi Asset Management. “Once the psychological level is breached, investors will probably pile in again as they view that as a breakthrough of major resistance.”
The CSI 300 Index gained 0.1 percent. Hong Kong’s Hang Seng China Enterprises Index added 0.8 percent, while the Hang Seng Index climbed 0.5 percent.
The Shanghai gauge’s 10-day volatility fell to the lowest level in a month after the government introduced measures including banning large shareholders from selling stakes, ordering state-run institutions to buy equities and suspending new share sales. Last week, people familiar with the matter said China Securities Finance Corp., a state-backed agency that provides margin finance and liquidity to the market, has up to 3 trillion yuan ($483 billion) to support stocks.
China is probing companies in the Shanghai free-trade zone for allegedly exploiting looser capital controls to bring money into the country and manipulate the stock market, according to people familiar with the matter. Companies in the zone, whose names are not disclosed, may have fabricated cross-border trade to transfer large amounts of capital into and out of China, the people said.
Trading volumes in the Shanghai index were 17 percent below the 30-day average as price swings narrowed. The gauge traded within a range of 3.5 percentage points for a second day Tuesday. The measure posted an intraday swing of 432 points on June 30, the most in more than two decades.
“Chinese stocks may pass their worst period and return to their normal volatility,” Warut Siwasariyanon, the head of research at Asia Wealth Securities Co., said by phone in Bangkok. “But it’s unlikely that there will be another major rally the same as we saw earlier this year.”
China’s foreign direct investment rose 0.7 percent in June, the commerce ministry said on Tuesday. That beat the median estimate of a 0.5 percent gain in a Bloomberg survey.
Margin traders increased holdings of shares purchased with borrowed money for a second day on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 921.3 billion yuan.
Rastar Group and Top Resource Conservation Engineering Co. both surged by the 10 percent daily cap in ChiNext trading. Among large caps, China Railway Group Ltd. and China Railway Construction Corp. led a rally for industrial shares, with each jumping 10 percent.
PetroChina Co., the nation’s biggest oil company, retreated 1.8 percent. The Bloomberg Commodity Index slid to its lowest close since June 2002 on Monday, and mining stocks drove equity losses around the world, with selling heaviest among emerging-market resource producers.