China Stocks Recover Part of Last Week’s Rout

Chinese shares recovered somewhat on Monday morning after suffering from their worst five-day trading period since 2015, stabilizing from sell-offs last week triggered by global market turmoil.

The Shanghai Composite Index, the benchmark index, rose 0.8% to 3,155.02 points as of lunchtime, after initially falling 0.45% during the morning session. The Shenzhen Component Index rebounded by 2.61%, while the Nasdaq-style startup board ChiNext gained by a bigger 2.91%.

Large caps, including China Southern Airlines Co. Ltd. and Kweichow Moutai Co. Ltd., gained 4.3% and 2.9%, respectively, on Monday morning, reversing their losses on Friday.

Shanghai shares posted their worst weekly performance in two years last week, retreating 9.6% in the wake of corrections in the U.S. and other global markets that themselves were reacting to fears of returning inflation. Mainland equity markets were hit as investors dumped small caps last Tuesday as pressure upon margin calls mounted, and then extended their sell-offs into blue chips on Friday on panic selling.

The Shanghai Stock Exchange said late Friday it had issued warnings and trading restrictions for investors who generated large sell orders. The China Securities Regulatory Commission, the country’s top securities regulator, didn’t respond to the market turbulence during its routine media conference on Friday.

Analysts and market participants attributed the turbulence to a slew of factors: margin calls, lack of support from state-backed funds nicknamed the “National Team,” and the government’s deleveraging campaign that has tended to squeeze out risky investment on stocks.

Investor sentiment is unlikely to tick up dramatically soon, as China markets will be closed on Thursday as the weeklong Lunar New Year holidays starts, analysts said.

Contact reporter Leng Cheng (chengleng@caixin.com)