By 

CHAO DENG

Updated Nov. 5, 2015 4:46 a.m. ET

6 COMMENTS

China entered a bull market Thursday, a surprising milestone after a volatile summer wiped out trillions in value from mainland equities and rattled global marketsmarkets.

The Shanghai Composite Index has gained 20.3% since Aug. 26, the bottom of the summer selloff. A bull market is defined as a rise of 20% from a recent low.

The benchmark finished up 1.8% at 3522.8 on Thursday, bringing its year-to-date gains to 8.9%.

China’s smaller Shenzhen Composite Index and a gauge of China’s volatile startup shares rallied 32% and 43%, respectively, from their recent lows on Sept. 15. On Thursday, the Shenzhen Composite closed up 0.2% at 2093.47 and the ChiNext Price Index finished down 0.8% at 2564.72.

The Shenzhen market has gained 48% this year, while the ChiNext is up 74%.

ENLARGE

A replica of the Wall Street bronze bull on Shanghai’s Bund. China shares closed in bull-market territory Nov. 5. PHOTO: BLOOMBERG NEWS

Investors gradually have returned to the market after a summer of panicked selling that Beijing scrambled to stem. Trading volumes have reached their highest level since mid-August and local investors are borrowing from their brokerages to buy stocks again. Margin loans climbed to their highest level in roughly two months after dropping sharply in the throes of the rout, when investors rushed to sell holdings to repay the money they borrowed.

Meanwhile, global shares have been rebounding too, with the MSCI World Index up almost 11% since late September. Markets world-wide tumbled in August, when China devalued its yuan, a surprise move that raised doubts about Beijing’s ability to transition the world’s second largest economy to a more market-oriented system.

This summer, Chinese officials dug deep into their playbook for ways to stabilize the market, from pumping money into state-backed funds that bought blue-chip stocks to cracking down on short sellers and suspending initial public offerings. They even pledged to keep buying until the Shanghai Composite Index reached 4500—a goal still roughly 1,000 points away.

Stocks rallied last month in anticipation that officials would announce easing measures after China reported its growth slowed to 6.9% in the third quarter, clouding its ability to reach a year-end target of about 7%. China has cut interest rates and the amount of reserves banks are required to hold three times since the start of the selloff, with the latest round of cuts in late October.

Despite the gains, some investors are skeptical that the wounds from the summer have healed.

“Lots of investors have been deeply hurt by the disastrous fall in summer,” said Gu Yuan, a retail investor from Shanghai, adding that regulators had clamped down on riskier practices like borrowing to buy stocks and hedging tools, which tend to reap higher rewards.

But for others, confidence the government won’t sell its holdings anytime soon has encouraged more buying.

“There is a feeling that people don’t want to miss out on buying at the bottom,” said Steven Wang, a research director at brokerage Reorient Group.

Analysts estimate the Chinese government has spent hundreds of billions of yuan buying stocks to stabilize the market, though officials haven’t disclosed the exact amount since they announced their massive intervention efforts in early July. The consensus is that authorities have held on to stocks, if not adding more to their portfolio.

China Securities Finance Corp. and Central Huijin Investment Ltd.—part of the so-called National Team, a group of state-backed companies and stockbrokers tasked to prop up the market—has bought in shares of 49% of listed firms in total on the A-share market, with more than 1.3 trillion yuan ($205 billion) of market capitalization, according to Wind Information Co.

Over the past two days, a sharp rally gave the index a push, with gains totaling 6%. Stocks jumped 4% on Wednesday when mainland shares rose on speculation, fueled by out-of-date comments by the central bank, that Chinese authorities would roll out a new trading link to further open up their market to foreign investors.

Shares of brokerages, which would benefit from higher trading volumes, led gains both days. Industrial Securities Co., Everbright Securities Co. and Huatai Securities Co. all hit their 10% maximum daily limit set by regulators on Thursday.

China’s market began to stabilize in September, when the unwinding of margin debt began to taper off. Loans hit a recent low of 906.7 billion yuan on Sept. 30.

The market picked up in October as investors tiptoed back, pushing margin loans up again. Shanghai’s 10% gain in October marked the index’s best month since April. Still, the month wasn’t without its bumpy patches, revealing the fragility of investor confidence: The Shanghai Composite suddenly tumbled 3% on Oct. 22.

Just 23% of total existing stock accounts were active in the last week of October, up from merely 13% two weeks ago, according to China Securities Depository and Clearing Corp.

On Wednesday, margin loans totaled 1.05 trillion yuan, down roughly 54% from a June 18 peak of 2.27 trillion yuan, according to Wind.

Daily trading volume jumped to 1.37 trillion yuan on Thursday, compared with a daily average of 883.4 billion in October. Thursday’s volume was up nearly four times from a recent low of 370.6 billion on Sept. 30 but still down about 40% from a record 2.4 trillion yuan on May 28.