Chinese shares correction paves way for rational market

The recent correction of Chinese shares could pave the way for the A-share market to become more rational, while authorities still have more tools to stabilize the market, HSBC said on Sunday.

It is surprising to see how quickly the A-share market has reversed its upward trend and volatility has spiked up. The benchmark Shanghai Composite Index has tumbled by 29 percent in three weeks, including a 12-percent loss this week, the banking giant said in its latest research note.

"We highlighted ballooning margin trading and leverage on A-shares a month ago," it said.

The recent tumult was a "perfect storm" for Chinese investors to learn about risk and reward as well as value-oriented investment approach despite the fact that all market participants have suffered from the sell-off, the bank said.

The Chinese stock market experienced a slump over past weeks, and a raft of measures has been rolled out to stabilize the market, with 28 companies that were given permission from the securities watchdog for initial public offerings (IPOs) announcing Saturday evening they would postpone follow-up issue of shares due to recent market fluctuations.

"The regulator still has more options to stabilize the market, and its latest probe into short selling in the futures market highlights its commitment in restoring market confidence," it stressed.