China stocks climb the most in three weeks on state intervention
Chinese stocks climbed the most in three weeks on Wednesday, recovering from previous steep losses after Beijing launched fresh rescue measures to prop up share prices following the worst market rout at the start of a new year.
However, Hong Kong and other Asian shares remained significantly weaker, as worries persist on extended volatility from Chinese stocks, with North Korea’s nuclear test further jangling nerves in the region.
Mainland China’s benchmark Shanghai Composite Index advanced 2.3 per cent to close at 3,361.84, snapping a three-day losing streak. The index plunged 7 per cent on Monday, marking its worst start to a new year in history, as fears about a deteriorating Chinese economy and the yuan’s fall to its lowest in nearly five years spurred a sell-off.
Meantime, the large-cap CSI300 rose 1.8 per cent to end at 3,539.81. The Shenzhen Composite Index settled 2.6 per cent higher at 2,133.96, and the Nasdaq-style ChiNext Index finished up 2.1 per cent at 2,468.37.
The Caixin China services Purchasing Managers’ Index (PMI) dropped to 50.2 in December, compared with 51.2 in November, according to Caixin Media and Markit.
The gains in stocks came after a series of rescue measures by the Chinese government to calm jittery investors following Monday’s turmoil. Beijing has ordered a group of state-backed funds -- also known as the “national team” -- to buy blue-chip equities and prop up share prices, various media reports said on Tuesday.
On the same day, the People’s Bank of China injected 130 billion yuan into the financial system via seven-day reverse repurchase agreements, the biggest operation of its kind in four months, signalling the central bank policy will remain easy amid a slowing economy.
Dozens of Chinese companies have pledged not to sell shares in the next six to 12 months in a bid to ease pressure on stock markets. The country’s top securities regulator also suggested it may extend a selling ban on major stakeholders past the original expiration date on Friday.
Other major Asian markets declined broadly on Wednesday, prompted by fears about
heightened geopolitical tensions after North Korea claimed Wednesday it successfully detonated a hydrogen bomb.
Hong Kong stocks extended a third straight day of losses, as the benchmark Hang Seng Index fell 1 per cent to 20,980.81. The Hang Seng China Enterprises, or the H-shares index, dropped 0.9 per cent to 9,137.79.
Elsewhere, Japan’s Nikkei Average declined 1 per cent to 18,191.32, Australia’s S&P/ASX 200 fell
1.2 per cent to 5,123.10, and South Korea’s Kospi Composite Index shed 0.3 per cent to 1,925.43.
North Korea’s test “added a touch of Armageddon fears to the markets”, after China’s stock turmoil rattled global equities earlier in the week, said Angus Nicholson, an analyst of IG Group.
“With hopes for the Chinese economy increasingly tied to its services sector, greater importance has been given to the monthly services PMIs,” Nicholson said. “So to see the Caixin Services PMI fall to its lowest level since July 2014 is quite concerning, particularly given the fall also seen in the Caixin Manufacturing PMI on Monday.”
Among market shakers, China Vanke, the country’s biggest property developer by sales, dived 9.2 per cent to close at HK$20.80, as it resumed trading in Hong Kong following a three-week suspension. Shares of the real estate company remain suspended in Shenzhen. China Vanke halted trading in both Hong Kong and Shenzhen last month, amid a fight over the control of the company between executives and the largest shareholder Baoneng Group. Wang Shi, chairman of Vanke, said Baoneng Group “lacks credibility” and could ruin Vanke’s image.
Looking ahead, analysts are cautiously optimistic about market sentiment in Hong Kong.
Kevin Leung, director of global investment strategy at Haitong International Securities, said shares on the Hong Kong market were “very cheap in valuation now, and the downward room is limited”.
“Sentiment is low but there will be very strong support at the 20,000 level,” he said.