Guo Feng, an investment adviser at Northeast Securities Co., said stocks also rallied on speculation the government is succeeding in reducing risks associated with non-brokerage margin lending. The China Securities Regulatory Commission cleared 3,255 non-brokerage margin funding accounts, or 61 percent of the total, spokesman Deng Ge said this week.

Margin traders cut holdings of shares purchased with borrowed money on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling to a nine-month low of 587.1 billion yuan ($92.2 billion).

The technology sub-index in the CSI 300, which has slumped 54 percent since its June peak, posted its biggest gain since September 2008. Yonyou Network Technology Co. rose by the 10 percent daily limit, rebounding from its lowest close since Jan. 5.Dr. Peng Telecom & Media Group Co. jumped 10 percent. Measures of health-care and industrial shares advanced at least 6.7 percent.

David Fuller's view

Well, China certainly has both a command economy and stock market, in case anyone was in doubt.  The trouble with this micromanagement is that it is an on-the-job learning process.  Moreover, China’s proclivity for a casino environment creates global shock waves. 

Yes, China’s economy has slowed, probably to a GDP growth rate closer to 4% than the reported 7%.  Nevertheless, China certainly has the world’s second largest economy, and by some measures, including imports, it is the largest economy. 

For the world’s investors, whether domestically oriented or internationalists, China is the big elephant in the room.  Moreover, it is still growing, seldom a passive presence and often unpredictable.  We may or may not want to invest in China, but we certainly need to keep an eye on it, starting with price charts for China’s indices.  

Today, China’s rogue elephant triggered a global stock market and industrial commodity rally, with significant intervention in the last hour of trading. Here are some of the results: China Shanghai A-Shares (p/e 15.65, yield 2.02%), according to Bloomberg; Shanghai B-Shares (p/e 21.56, yield 1.60%); China CSI 300 (p/e 13.49, yield 1.97%); Hong Kong (HSI) (p/e 9.45, yield 3.73%); Hong Kong China Enterprises (H-Shares) (p/e 7.06, yield 3.95%), and you will find more in the Country Indices section of the Chart Library.

Regarding the price / earnings ratios, these are historic rather than estimates and China’s economy has slowed, so weaker earnings may lift these valuations somewhat going forward.  Nevertheless, for China’s mainland indices, we are no longer talking about bubble territory.  Moreover, the Hong Kong indices are historically cheap with single figure p/e ratios and yields approaching 4%. 

These charts are all very overextended and losing downside momentum.  China’s monetary policy is accommodative and some government support is now occurring.  No doubt China’s markets and policies will continue to test investors’ nerves from time to time.  Today, they are recovery candidates.