China stocks extend gains on Wednesday

Chinese shares extended gains on Wednesday, with the benchmark Shanghai Composite Index climbing above the 4,000-point psychological mark.

The index edged up 0.21 percent to close at 4,026.05 points.

The smaller Shenzhen Component Index gained 0.76 percent to close at 13,416.54 points. The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, gained 0.50 percent to end at 2,897.37 points.

Total turnover on the two bourses grew slightly to around 1.28 trillion yuan (209.8 billion U.S. dollars) from 1.2 trillion the previous day.

The major Shanghai index opened below the 4,000 point mark in the morning, as market sentiment remained cautious following the recent drastic ups and downs.

It then fluctuated during the day before ending above the psychological point, marking the fifth consecutive day of gains following government moves to arrest a freefall that saw the key index plunge over 30 percent.

Shares related to aviation, military and online education led the gains, while railway construction, insurance and securities were among the biggest losers.

Latest data from the People's Bank of China showed that around 67.38 billion yuan of Chinese stocks were sold off by foreign investors in June, leaving total yuan-denominated stock holdings by overseas investors nearly 10 percent less than in May.

The Chinese stock market plunge, which has knocked 35 percent of the stocks value from a peak in mid-June, is the main factor that led to foreign investors' cashing out, said Xie Yaxuan, chief analyst with China Merchants Securities.

According to analysts, the market's rebounds in the past few days are a result of government support including pouring in funds and restricting futures trading on a major small-cap index, as well as better-than-expected economic data for the second quarter. This reassured investors and laid a solid foundation for sound development of the equity market.

China's second-quarter GDP expanded 7 percent year on year, thanks to the government's bold moves in macro-control and structural reforms, according to the National Bureau of Statistics.

Market confidence will be further boosted by more institutional investors entering the market and investing more rationally, said Wen Hua, analyst with National University of Singapore, referring to pension funds being allowed to get involved in the country's stock market.

In China, urban employees pay for their pension before retirement and usually get a pension equal to about half of their previous salary.

An official draft guideline released earlier in June gave pension funds the nod to invest in new channels, including the stock market, but restricts the maximum proportion of investments in stocks and equities to 30 percent of total net assets, a caveat to minimize risks.

Besides the pension fund, which is only allowed to invest in the domestic stock market, the National Council for Social Security Fund (SSF) is another social security strategic reserve for China's future aging population, with a bigger investment scope in both domestic and overseas stocks as well as fixed income assets.

On Tuesday, east China's Shandong Province decided to entrust the SSF with around 100 billion yuan (16.34 billion U.S. dollars) of pension funds to bolster their value.

Pensions entering the equity market is positive news for retail investors, as it will lower risks and help stabilize the market by diversifying investment styles, Wen said.

"China's equity market has basically returned to normal," said Chen Xiaosheng, an analyst with Shenwan Hongyuan Securities.

As state-owned enterprise reform has become the focus of the whole market, policymakers should follow market expectations and carry out concrete reform measures to solidify the stock market, Chen said.