Debt-for-equity swaps boost market

China stocks rebounded on Tuesday with strong gains in shares related to debt-for-equity swaps, as authorities issued a guideline on reducing the enterprise leverage ratios. 

The Shanghai Composite Index rose 0.39 percent to 2,952.34 points. The smaller Shenzhen Component Index also gained 0.48 percent to 9,399.1 points, while the blue chip CSI300 index closed 0.42 percent higher at 3,870.32 points.

Turnover on the two major bourses of Shanghai and Shenzhen added up to 384.24 billion yuan (US$55.66 billion), compared with the previous session's 343.74 billion yuan.

Stocks of 40 companies listed on the A-share markets hit the daily limit of 10 percent.

Shares related to debt-for-equity swaps led the gains, as China's top economic authorities announced support for financial institutions to conduct market-oriented debt-for-equity swaps in qualified private enterprises.

On July 29, the National Development and Reform Commission, the People’s Bank of China, the Ministry of Finance and the China Banking and Insurance Regulatory Commission released a joint guideline saying that the country will strengthen the pivotal role of financial asset investment firms in the swap program, encourage the participation of social capital and accelerate asset transactions.

GI Technologies Group Co, Tempus Global Business Service Group Holding Ltd and Tianjin Printronics Circuit Corp all surged by the maximum 10 percent.

Stocks related to online games were also among the biggest gainers, with Kingnet Network Co, Dalian Zeus Entertainment Co and Hangzhou Electronic Soul Network Technology Co all hitting the daily cap.

Non-bank financial shares, the media sector, and non-ferrous metal firms also rallied.

Among the 25 companies listed on the newly launched STAR Market, almost all stocks extended gains, with only one company (China Railway Signal & Communication Corp Ltd) posting modest losses of 0.49 percent.