Bulls keep bears at bay on bourses

An investor checks stock prices at a securities brokerage in Nanjing, capital of Jiangsu province, on Friday. [Photo provided to China Daily by Su Yang]

Equities recovered on Friday, alleviating investor concerns that trading of stock index futures on the contract expiration day could potentially cause sharp market volatility.

The benchmark Shanghai Composite Index gained by 3.51 percent to close at 3,957.35 points. The Shenzhen Component Index that tracks smaller companies also rose by 5.24 percent to close at 1,3004.96 points.

Friday had been considered by many "the day of the battle" between the bulls and bears as investors are scheduled to settle their July stock index futures contracts which would likely cause wild market swings.

The futures market has been trading at a discount to the current market level, raising fears that the bears who have been shorting the market would further knock down the spot index to gain greater profits.

"In fact, most traders like me have cleared their positions or switched to the position for contracts of next month before the July contract expires. So there would unlikely be much of a price swing on the final day," said Li Xinran, an individual futures trader.

Short selling through futures trading has been blamed for the recent stock market correction which erased nearly $4 trillion of market value in a matter of weeks and prompted the government to adopt a series of measures to prop up the market.

Securities regulators and the police have investigated companies that are suspected to have manipulated the market by trading stock index futures.

China launched trading of stock index futures in 2010, which for the first time offered investors the tool to hedge risk and short the market in anticipation of falling stock prices. Previously, investors could only make profit when the market rises.

But some analysts warned that it is too early to claim that the bulls have won. The August futures contract for stock index CSI 300, which tracks major blue chips in both Shanghai and Shenzhen bourses are traded at a discount to the current market level, indicating that most traders are still anticipating a falling market in the future.

Meanwhile, foreign investors have been reducing their exposure to the A-share market over concerns that the latest government intervention would limit the trading accessibility of the market.

Deng Ge, a spokesman of the China Securities Regulatory Commission told a news conference on Friday that the regulator will support the launch of the Shenzhen-Hong Kong Stock Connect at an appropriate time.

The trading link is similar to the one between Shanghai and Hong Kong, a pilot program launched last November that opened the A-share market to overseas investors.