China share markets join regional rebound as oil price uptick

Shanghai benchmark gains 1.3 per cent, Shenzhen tacks on 1.5 per cent

PUBLISHED : Friday, 22 January, 2016, 5:39pm
UPDATED : Friday, 22 January, 2016, 10:24pm

Chinese equity markets closed higher on Friday, joining a regional markets rebound amid a mild recovery of the oil price.

The benchmark Shanghai Composite Index added 1.3 per cent, or 36.08 points to close at 2,916.56. It ended the week’s trading 0.54 per cent higher, following a 9 per cent loss the week before, and reversed a three-week losing streak.

“The great concern about China’s economy has spilled over to global markets and caused jittery, but the market itself has reached a relatively stable level and has been moving in a smaller trading band after the intense sell-off in previous two weeks,” said Wang Zhen, an analyst with China Merchant’s Securities.

“However, it would also be hard for the Shanghai Composite to move upward to break the 3,000 level in the near future, given the global markets are weighed by weak sentiment,” he said.

The CSI300 advanced by 1.04 per cent, or 32.12 points to 3,113.46. The Shenzhen Composite Index closed up 1.5 per cent, or 26.35 points to 1,827.34. While the Nasdaq-style ChiNext Index advanced 1.76 per cent, or 37.18 points to 2,149.59.

Companies engaged in coal mining, steel, aerospace, tech and construction operation saw the biggest gains in Shanghai and Shenzhen on Friday, while the shipping industry ranked as the only loser.

Asian markets were higher Friday, tracking the rally in European and US equities overnight, boosted by a slight uptick in oil prices and comments from the European Central Bank (ECB).

ECB chief Mario Draghi hinted that new stimulus may be forthcoming at the ECB meeting in March.

Elsewhere around Asia, Japan’s Nikkei 225 Index jumped 5.9 per cent to 16,959. Hong Kong’s benchmark Hang Seng Index advanced by 2.9 per cent to 19,080.51.

On the regulatory side, the Shanghai Stock Exchange announced Friday that they have temporarily suspended an account from trading on Thursday, after the selling of stocks by the company’s major shareholder drove down share prices.

The Shanghai exchange said earlier that they would monitor and take steps to prevent negative outcomes from selling by major shareholders.

Li Yuanchao, vice president of China said the government has no intention of devaluing the yuan, and the recent fluctuations in the currency market were caused by market forces, in comments made to Bloomberg on Thursday during the World Economic Forum underway in Davos, Switzerland.

Fang Xinghai, vice chairman of China’s Securities Regulatory Commission, another high official attending Davos, said China should do more to support the economy.

Fang also acts as a director with the Communist Party’s Central Leading Group for Financial and Economic Affairs.

However, many analysts believe the yuan is likely to see more depreciation this year.

Jefferies warned in a research note on Friday that more earnings shocks for the utilities sector could be in the cards as the Chinese yuan continues its downward slide.

“We believe the yuan is set to depreciate by 8 -10 per cent in 2016, paving the road for more earnings shocks in the near-term. Offshore debt accounts for 25 - 96 per cent of the gas distributors’ balance sheet and the companies are poised to suffer from sizable translation losses,” the US investment bank said in a note on Friday.

However, it also noted cash flow impact is muted, given their healthy cash flow and balance sheets. Companies are refinancing offshore debt with yuan denominated borrowings to manage the earnings volatility.