China Stocks Post More Wild Swings Amid Beijing Stability Vow

(Bloomberg) — Chinese stocks were caught in another volatile session Monday following last week’s rout, as investors assessed the latest pledges by policymakers to stabilize the slumping equity market.

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Shares rebounded in the afternoon as the securities regulator said it will take steps to prevent risks stemming from share pledges. The CSI 300 Index rose more than 1% after earlier dipping 2.1%. Gauges of small cap shares pared losses but still remained deep in the red.

Some $7 trillion has been erased from the value of equities in China and Hong Kong since their peaks in early 2021 as a long-running property slump, weak economic data and tensions with the US rattle investors. Margin calls and forced liquidation faced by shareholders are emerging as a key risk after the latest pledge of support provided few details on how authorities will stem the rout.

“The medium cap and the small caps are under intense selling pressure as some investors have been betting on more national team support for the big caps,” said Ken Wong, an Asian equity portfolio specialist at Eastspring Investments. “The long CSI 300 and short CSI 500 and CSI 1000 trade has been one such popular trade.”

The CSI 1000 gauge, frequently used as the underlying benchmark for snowball derivatives, has been facing selling pressure as the products hit so-called knock-in levels that incur losses to investors. It slumped as much as 8.7% early on Monday before paring about half the losses.

Read more: China Snowballs and Their Role in This Year’s Stock Selloff: Q&A

The latest slump has led to fresh concerns over a wave of margin calls as the value of shares put down as collateral shrinks. The fear is that investors failing to top up their margin trading accounts may be forced liquidation of positions.

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The China Securities Regulatory Commission pledged on Sunday to prevent abnormal fluctuations, saying it would guide more medium- and long-term funds into the market…