China Stock Turmoil 2015

China stocks jump further after re-entering bull markets

PUBLISHED : Friday, 06 November, 2015, 9:01am
UPDATED : Friday, 06 November, 2015, 9:11pm

Chinese stocks jumped further on Friday, led by a surge in securities firms, after the benchmark re-entered the bull market the day before, as market sentiment improved considerably with investors turning upbeat on China’s economic growth and piling back into equities.

However, Hong Kong stocks pulled back, as concerns over a Fed interest rate increase in December and increasing bad loans in Chinese banks dragged on sentiment.

The benchmark Shanghai Composite Index climbed 1.9 per cent to 3,590.03, marking a third consecutive day of gains. The index pushed into bull market territory on Thursday, having surged over 20 per cent from its August 26 low of 2,927.29. For the week, the benchmark has rallied 6.1 per cent.

The large-cap CSI 300 also gained 2.4 per cent on Friday to end at 3,793.37. The Shenzhen Composite Index rose 2.8 per cent to finish at 2,152.43, also up for the third straight session, while notching up an advance of 6.8 per cent for the week. The Nasdaq-style ChiNext Index tacked on 3.8 per cent to 2,661.41.

Turnover slightly retreated from a three-month high on Thursday, reaching 543 billion yuan in Shanghai. However, it was still up 27 per cent from Wednesday’s 427 billion yuan, and more than double Tuesday’s 246 billion yuan.

Leading the markets higher were securities firms, which soared further as several top brokers recorded a month-on-month surge in net profit for October on improving market sentiment.

“Brokerage houses were the clear winners of the week with investors betting that trading volumes will actually improve as the market becomes more confident, “ said Gerry Alfonso from Shanghai-based Shenwan Hongyuan Securities.

Citic Securities, the country’s largest brokerage house, said late Thursday that its October profit increased 95 per cent month on month to 1.3 billion yuan, compared with September’s 665 million yuan. Smaller rival Haitong Securities also posted a 33 per cent month-on-month jump in net profit for October. Shares of Citic Securities was up 10 per cent higher in Shanghai to 20.5 yuan, and up 3.4 per cent in Hong Kong to HK$19.32. Haitong Securities saw its A-shares leap 8.3 per cent to 18.01 yuan while its H-shares gained 2.4 per cent to HK$14.8.

A number of other brokers were halted from trading in Shanghai as their price gains exceeded the 10 per cent daily limit. They included EverBright Securities, Dongxing Securities, Western Securities and Pacific Securities, among others.

Earlier this week, a survey by the official China Securities Investor Protection Fund Corporation said investor confidence rose in October for the second straight month as positive policies and ample liquidity have driven investors back into equity markets in the past weeks.

Chinese leaders also stated recently that the country’s economic growth will not be less than 6.5 per cent for the next five years, and the central government will make great efforts to stabilise industrial production growth and deepen economic and financial reforms.

Analysts said market sentiment has improved considerably after a recent slew of data suggested China’s economy may be stabilising amid the government’s massive stimulus efforts.

“The latest business surveys and credit data suggest China itself may be regaining some momentum,” analysts for Capital Economics said in a research note late Thursday. They added that this year’s policy stimulus by the People’s Bank of China has been taking effect.

However, Hong Kong stocks experienced a more volatile day on Friday, closing down 0.8 per cent at 22,867.33. The Hang Seng China Enterprises settled 0.6 per cent lower at 10,555.97.

The benchmark opened lower after the US stocks fell overnight as investors turned cautious ahead of a closely watched US jobs report due Friday and weighed the possibility of a December interest rate increase.

“Some of the cautious positivity seen in Asian markets may be positioning for a bit of a pullback in expectations of a December rate by the Fed if we do see the NPF (Non-Farm Payroll) number disappoint,” said August Inchiolson, an analyst for IG Group.

The markets fell further in later trade, as the weakness of Chinese banks, triggered by reports of increasing bad loans, overcame the gains in securities firms.

Turnover reached around HK$72 billion in Hong Kong, slight down from Thursday’s HK$84 billion.

Industrial and Commercial Bank of China, the country’s largest bank, declined 2 per cent to HK$2.87, Bank of China dropped 1.6 per cent to HK$3.59, and China Construction Bank also lost 1.6 per cent to HK$5.63.

The bad loan ratio of commercial banks in the provinces of Zhejiang, Guangdong, and Shandong has spiked above 2 per cent respectively by the end of third quarter, while many other provinces recorded negative profit growth in their banking sector separately for the first nine months of the year, according to a Friday report by First Financial Daily.

Also dragging the markets lower were index heavyweight HSBC Holdings, down 1.7 per cent to HK$60.9, and telecoms giant China Mobile, off 2 per cent to HK$93.3.

British lender Standard Chartered sank 4.6 per cent to HK$76.2, extending an overnight rout in London, after Fitch Ratings downgraded the company following the release of a surprise third-quarter loss by the bank. Some 3.8 million shares changed hands, far exceeding the daily trading volumes of 1.6 million on Thursday. Turnover hit HK$285 million, more than doubling the HK$129 million in the previous session.

The London-listed stock of StanChart dropped further by 0.2 per cent in early trade Friday evening, following a 6.3 per cent plunge on Thursday.