China’s stocks fell, capping the benchmark index’s biggest two-month tumble since 2008, amid concern that government intervention to prop up the market will fail.
The Shanghai Composite Index dropped 0.8 percent to 3,205.99 at the close. The gauge lost 12 percent this month after sliding 14 percent in July. The SSE 50 Index of the nation’s biggest stocks rebounded 6.7 percent from its intraday low. Citic Securities Co. slid 5 percent after Xinhua News Agency said executives were detained on suspicion of insider trading and the securities regulator was said to order the brokerage industry to boost its contribution to the nation’s market rescue. Bearish bets in the options market climbed as traders weighed the level of state support before a World War II victory parade this week.
The Shanghai Composite closed near its highest level of the day for the third straight session amid speculation state-backed funds are using afternoon share purchases to bolster the market before the parade, which the government will use to demonstrate its rising military and political might. Swings in Chinese markets this month have rattled investors worldwide as they struggle to anticipate policy actions in the world’s second-largest economy.

Limited Disclosures

“There is a lot of confusion about purchases of stocks by state-linked funds,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “Disclosures are very limited so it is impossible to know what they are doing with certainty.”
The CSI 300 Index rose 0.7 percent after slumping as much as 4.1 percent earlier. Hong Kong’s Hang Seng China Enterprises Index fell 0.1 percent. The Hang Seng Index rose 0.3 percent.
The government revived its intervention in equities on Thursday to halt the biggest selloff since 1996. The effort to support markets was part of a broader push to ensure nothing detracts from the parade. China’s financial markets will be shut Thursday and Friday to commemorate the event. Hong Kong’s bourse will be closed on Thursday.
“It look like that the government is buying shares today,” said Li Jingyuan, general manager of the securities investment department at Shanghai Zhaoyi Asset Management. “They still want to stabilize the market at this level.”
The Shanghai gauge will stabilize in a range between 2,700 and 3,000, David Gaud, senior fund manager at Edmond de Rothschild Asset Management, wrote in an e-mail. Forced intervention amid the market sell-off in July now looks counter-productive, he wrote.

Stock Support

China’s securities regulator asked brokerages to step up their support for share prices by contributing 100 billion yuan ($15.7 billion) to the nation’s market rescue fund and increasing stock buybacks, according to people familiar with the matter. The China Securities Regulatory Commission gave the order at a meeting with representatives of 50 brokerages on Saturday, which CSRC Chairman Xiao Gang also attended, said the people who asked not to be identified because the meeting hasn’t been made public.
Four executives of Citic Securities, the nation’s largest brokerage, a journalist at business magazine Caijing and a staff member at the CSRC all confessed to alleged stock-related crimes, Xinhua said.
Haitong Securities Co. declined 5.4 percent, while Western Securities Co. slumped 5.2 percent.
Stocks also fell on concern the economic slowdown is hurting earnings. Gree Electric Appliances Inc., China’s largest manufacturer of air-conditioners, dropped 5.4 percent after saying its first-half net income rose 0.05 percent from a year earlier. Gauges tracking consumer, material and technology companies slid at least 1.1 percent on the CSI 300.
The statistics bureau is due to release an official manufacturing index for August on Tuesday. The gauge, known as the Purchasing Managers’ Index, probably fell to 49.7 from 50 in July, according to the median estimate of a Bloomberg survey. A reading below 50 indicates contraction.
Investor sentiment is getting increasingly pessimistic. Puts that pay out on a 10 percent drop in the China 50 exchange-traded fund cost 9.3 points more on Monday than calls betting on a 10 percent gain, according to implied volatility data on one-month contracts. As recently as Aug. 24, the bullish contracts were more expensive. For the U.S.-listed Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the skew reached a record 38 points on Aug. 27 and closed the week at 28 points.