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China Economy

China shares rebound after entering bear market

China shares still well above levels of previous bear market lows, analysts say

PUBLISHED : Monday, 18 January, 2016, 5:29pm
UPDATED : Monday, 30 May, 2016, 5:09pm

Mainland China stocks closed higher in light turnover on Monday, rebounding after entering bear market territory last week, and as Beijing tightened control of liquidity on the offshore yuan market to curb devaluation of its currency.

The benchmark Shanghai Composite Index closed up by 0.47 per cent, or 13.52 points, to 2,914.49. The Shanghai benchmark ended last week more than 20 per cent below its high in December, meeting the technical measure for bear market. The CSI300 Index advanced by 0.41 per cent, or 12.70 points to 3,131.43. The Shenzhen Composite Index gained 1.91 per cent, or 34.22 points to 1,830.35. The Nasdaq-style ChiNext Index surged 2.94 per cent, or 62.08 points to 2,174.98.

Turnover in Shanghai reached 173.6 billion yuan (HK$ 205.7 billion), down from 206.6 billion yuan on Friday.

The People’s Bank of China said it will raise the reserve requirement ratio for yuan deposits placed in yuan clearing banks from January 25, in its latest bid to stem speculation in the currency, sources said during the weekend.

Analysts said Beijing has highlighted currency stability as a priority in an effort to relive pressure on its foreign exchange reserve, after having already spent billions of dollars buying yuan to defend the exchange rate.

The offshore yuan and onshore yuan both strengthened and converged in value on Monday.

Hong Hao, chief strategist with Bocom International, said the central bank would be able to contain the sharp devaluation of yuan, by “sacrificing” the offshore market. But sentiment can not be effectively lifted “on both the currency and stock market” unless the real economy gave upbeat signals.

Wei Wei, an analyst with Ping An Securities, said: “Government policies in January and February will focus on cutting down overcapacity and leverage in economy, neither of the tasks supports the stock market. Generally speaking, there seems no support for a rebound in the near term.”

Although the forward price earnings ratio of the CSI300 constituent shares has dropped to the historical mean at 10.4 times, stocks are “not cheap” compared to several earlier bottom levels, said Wang Hanfeng, chief strategist with China International Capital Corporation.

Three companies, including Shanghai-listed Anxin Trust and Shenzhen-listed CASIN Guoxing Property Development and Myhome Real Estate Development became the first batch to announce annual results on Monday.

Myhome Real Estate reported 428 million yuan in net profit in the 2015 financial year, up 468.5 per cent year on year. The company also said it would pay 63.98 million yuan in dividends. The company’s shares closed down by 3.27 per cent to 5.03 yuan.

The other two companies also reported net profit growth and hefty dividend payouts. Anxin Trust’s shares lost 0.9 per cent to close at 18.49 yuan, while CASIN’s share rallied by their daily 10 per cent limit to 53.29 yuan.

Gains were led by technology, healthcare and luxury goods retailers. Sectors that ranked as the worst performers included mining, steel, and oil.

Lufax, China’s biggest online peer-to-peer lending platform, controlled by Ping An Insurance, announced on Monday it just raised more than US$1.21 billion in its latest fundraising round. The company is valued at US$18.5 billion privately now, and its chairman Ji Kuisheng said Lufax could IPO on the domestic market.

In a speech at an annual work conference at the weekend, Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC), said the recent “abnormal volatilities of the stock market shows the loopholes in CSRC supervision”, adding that the securities watchdog should “learn the lessons”. But he also noted that CSRC officials were under pressure and many have resigned.

Meanwhile, the Hong Kong stock market closed lower amid soft regional markets and weak performance for US shares on Friday. The benchmark Hang Seng Index lost 1.41 per cent, or 275.32 points to 19,245.45. And the Hang Seng China Enterprises Index, tracking mainland companies, dropped 1.13 per cent, or 93.17 points to 8,143.11.

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