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Chinese stocks close higher on economic data support as Hong Kong index pulls back from year high

PUBLISHED : Tuesday, 09 August, 2016, 9:28am
UPDATED : Tuesday, 09 August, 2016, 10:12pm

Mainland Chinese stocks closed higher on Tuesday after data showed China’s consumer inflation slowed further in July, keeping alive hopes of additional monetary policy support to stimulate the economy.

The large-cap CSI300 climbed for a sixth straight session, gaining 0.70 per cent or 22.80 points to 3,256.98 on Tuesday while the Shanghai Composite Index rose 0.71 per cent or 21.40 points to 3,025.68.

The Shenzhen Composite Index was up 1.04 per cent or 20.40 points at 1,982.66 and the startup board ChiNext Index closed 1.12 per cent or 23.91 points higher at 2,154.50.

The gains came after China’s statistics bureau reported the country’s July CPI inflation eased to 1.8 per cent compared with the same period a year ago, compared to 1.9 per cent in June. The producer price index (PPI) deflation continued to moderate, falling 1.7 per cent in July from a year earlier, less than the forecast 2 per cent drop in a Reuter’s survey.

“Looking ahead, as food price inflation may continue to ease on the back of falling pork and fresh vegetable prices, we expect full year CPI inflation to remain comfortably below the 3 per cent government target,” said Jing Li, an economist at HSBC. “This leaves ample room for monetary easing.”

In a report J.P. Morgan analysts wrote “our baseline scenario assumes one 25 basic point rate cut in the fourth quarter this year, most likely in October”.

Separately, Hong Kong stocks failed to follow the mainland market’s rise, retreating from their year high. The city’s benchmark Hang Seng Index edged down 0.13 per cent or 29.15 points to close Tuesday’s trade at 22,465.616.

The Hang Seng China Enterprises Index, or the H-shares index, nudged higher by 0.27 per cent to

9,301.17.

A slight retreat from a year high is reasonable for Hong Kong stocks, but I think the rising momentum still remains
Victor Au, Delta Asia Financial

In Hong Kong, index heavyweight China Mobile led the losses among the top five active shares, down 1.23 per cent to HK$96.5 ahead of the release its half-year results on Thursday. Smaller rivals China Telecom and China Unicom also pulled back, down 0.25 per cent and 0.24 per cent respectively.

Among the heavily traded stocks, Sino-British banking giant HSBC Holdings retreated after recent gains, off 0.28 per cent to HK$54.35. Hong Kong railway operator and property developer MTR Corp shed 0.68 per cent to HK$43.50 before its half-year results were announced after trading closed.

“A slight retreat from a year high is reasonable for Hong Kong stocks, but I think the rising momentum still remains,” said Victor Au, chief operating officer at Delta Asia Financial. “Hong Kong stocks increased amid rallies of emerging markets driven by money inflows. And the situation will keep up in the near future.”

However, investors remain cautious towards the recent rally of Hong Kong stocks as confidence is still not high in the wake of the market turbulence seen last year, Au added. This is reflected in the low turnover of Hong Kong stocks.

Market turnover on the Hong Kong main board was only HK$53.24 billion on Tuesday, the lowest level in 10 days.

The coal industry, nevertheless, was among the biggest gainers in Hong Kong, seeing an average gain of 1.01 per cent as a group because improving producer prices in China attract bets on resources shares. SouthGobi Resources jumped 2.9 per cent to HK$ 1.42 and Asia Coal added 2.67 per cent to HK$0.19.