China Shares Erase Weekly Drop on Optimism About Futures Trading

(Bloomberg) -- Chinese stocks climbed, with a measure of small companies surging the most since October, amid speculation they will benefit from a plan to ease index-trading restrictions.

The Shanghai Composite Index added 0.7 percent to 3,123.14 at the close, erasing a weekly drop. Shares extended their rally in the afternoon session amid reports that policy makers had offered funds to some lenders to meet cash demand before the Lunar New Year holidays. The People’s Bank of China said after markets closed that it provided a 28-day temporary liquidity facility to some major commercial lenders.

China plans to relax curbs on stock-index futures trading that led to a 99 percent plunge in volumes, according to people familiar with the matter. The China Financial Futures Exchange will cut transaction fees, lower margin requirements for non-hedging accounts and double the number of new positions such traders are allowed to open per day, the people said. The updated rules are set to come into effect next week. Equities were supported also by data showing China’s economic growth accelerated for the first time in two years.

"The potential easing of trading curbs on stock index futures signals a turning point in regulators’ attitude toward leveraged positions on equities," said Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong. "The news is more positive to ChiNext, because small caps are more likely to benefit from leveraged trading, particularly at a time when they have been oversold."

The ChiNext Price Index of small companies rose 2 percent on Friday, with Beijing Watertek Information Technology Co. leading the advance with an 8 percent gain. The measure’s 30-day volatility is at its highest level since August, while volatility among Shenzhen shares is the most since July. In a sudden afternoon drop Monday, Shenzhen shares fell as much as 6.1 percent before paring declines on speculated state intervention.

The Hang Seng Index declined 0.7 percent Friday to end the week down 0.2 percent. A gauge of Hong Kong-traded Chinese shares tumbled 0.8 percent to a 0.7 percent weekly loss.

The nation is in no rush to get its domestic equities into MSCI Inc.’s benchmark indexes because China has enough liquidity, and key differences over the development of index futures won’t easily be resolved, according to a senior securities regulator. China’s domestic equities were denied entry into MSCI’s benchmark indexes for a third year in June despite a flurry of measures to address the index compiler’s concerns.

Sealand Securities Co., which resumed trading Friday, fell by 7.8 percent in Shenzhen after earlier dropping by the daily limit. The company said that it has signed pacts with 24 institutions involving a forged seal issue.

Leshi Internet Information & Technology Corp. shares rose 3.2 percent. Billionaire founder Jia Yueting apologized for making “inappropriate” comments about boosting the share price of LeEco’s main listed unit to 100 yuan. The company has secured strategic investments, according to a statement released last week.

--With assistance from Jeanny Yu To contact Bloomberg News staff for this story: Emma Dai in Hong Kong at edai8@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Ryan Lovdahl, Robin Ganguly

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