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Hong Kong, Shanghai stocks gain for third day running on stimulus optimism

Market now expects quarter point cuts in interest rates, and the banks’ reserve requirement ratio, before end of the year

PUBLISHED : Wednesday, 13 July, 2016, 9:30am
UPDATED : Wednesday, 13 July, 2016, 10:20pm

Hong Kong and Shanghai stocks gained for a third straight day on Wednesday, hitting fresh multi-month highs.

The sentiment continued positive, as investors widely expected China to unveil additional stimulus measures following the release of weaker-than-expected trade data in June.

Premier Li Keqiang also signalled his administration will strive to achieve the country’s annual growth target of at least 6.5 per cent by cultivating new growth drivers.

Hong Kong’s benchmark Hang Seng Index rose 0.5 per cent or 97.63 points to end at 21,322.37, the highest close in two and a half months. Mainland China’s benchmark Shanghai Composite Index also closed 0.4 per cent or 11.31 points higher at 3,060.69, its best level since mid-April.

Earlier in the day, customs figures indicated China’s exports in US dollar terms fell 4.8 per cent in June from a year earlier, missing a forecast 4.1 per cent drop from a Reuters survey of economists.

Imports also fell more than expected, down 8.4 per cent year-on-year, well below market expectations of a 5 per cent decrease.

“The prospects for China’s export sector are relatively bleak: the uncertainty generated by Brexit could cast a pall over demand in the EU, China’s largest export market.

“An anticipated rise in US interest rates could also curb import demand in the country,” said Yue Su, China economist for The Economist Intelligence Unit.

The prospects for China’s export sector are relatively bleak: the uncertainty generated by Brexit could cast a pall over demand in the EU, China’s largest export market
Yue Su, China economist for The Economist Intelligence Unit

Louis Wong Wai-kit, director of Phillip Capital Management, said the upbeat sentiment in A-share markets was largely driven by expectation of additional stimulus measures.

“The expected poor economic data should result in Beijing announcing more interest rate cuts and other monetary easing measures to boost the economy.

“It is widely expected that China will cut interest rates once, and reduce the banks’ reserve requirement ratio, in two quarter-point moves in the second half of this year ,” Wong said.

Premier Li Keqiang told a public forum in Beijing on Wednesday that he was confident the government can achieve its annual growth target of at least 6.5 per cent by pushing forward reforms, driving innovation, and further opening up the economy.

Media-related and telecommunication sectors were top gainers. Marketing firm BlueFocus Communication Group soared by the 10 per cent limit to 10.88 yuan, Beijing Enlight Media jumped 5 per cent to 12.17 yuan, while Hunan TV & Broadcast Intermediary improved by 3.4 per cent to 16.97 yuan.

China United Network Communications surged 7.2 per cent to 4.34 yuan, and Beijing Sinnet Technology ended higher by 5.1 per cent at 39.75 yuan.

Defence stocks extended gains, after an international tribunal in The Hague rejected China’s claims to sovereignty over most of the South China Sea, which was expected to escalate military tensions.

In Shanghai, Sainty Marine Corp climbed 5 per cent to 10.13 yuan. In Hong Kong, China Aerospace International Holdings gained 1 per cent, to end at 99 HK cents.

Among other market shakers in Hong Kong, British lender Standard Chartered Bank jumped 3.9 per cent to HK$62.40, and life insurer Prudential gained 3.8 per cent at HK$132.40, as investors expected more stimulus from the Bank of England after its governor Mark Carney said there would be “monetary response” if Britain’s outlook worsens.

Elsewhere in the region, major stock indices notched solid gains after the S&P 500 and the Dow Jones Industrial Average both closed at all-time highs on Tuesday night.

Japan’s Nikkei Average edged 0.8 per cent higher, after the Japanese government signalled it will launch an aggressive economic stimulus.