Hong Kong Stock Exchange

Resource and energy shares lead China stocks higher as state vows capacity cuts

PUBLISHED : Monday, 25 January, 2016, 9:18am
UPDATED : Tuesday, 26 January, 2016, 1:57pm

Chinese stocks settled higher on Monday in the second day of gains to claw back losses from a rout that has left mainland benchmark indices in a hole by almost 20 per cent so far this year.

Resource and energy shares led the rally, as Beijing stressed it will reduce capacity in its overcrowded steel and coal industries. A surge in crude futures also provided a strong boost.

Mainland China’s benchmark Shanghai Composite Index ended up 0.75 per cent, or 21.95 points, at 2,938.51. Last week, the index rose 0.54 per cent, its first weekly gain of the new year. However, as of Monday, it’s still down 17 per cent so far this year.

The large-cap CSI300 also closed higher by 0.5 per cent at 3,128.89. The Shenzhen Composite Index advanced 1.01 per cent to finish at 1,845.78. The Nasdaq-style ChiNext Index settled 0.43 per cent higher at 2,158.82.

In Hong Kong, the benchmark Hang Seng Index finished up 1.4 per cent. 

Markets received a strong boost from steelmakers and coal miners after Premier Li Keqiang said in a State Council meeting that the government aims to tackle overcapacity in coal and steel industries. The government pledged to eliminate 100 million to 150 million tonnes of crude steel production capacity as well as effect a sharp reduction in coal capacity, state-owned Xinhua news agency reported over the weekend.

On Monday, Shenzhen-listed steelmaker Angang Steel leapt 6.9 per cent to close at 4.82 yuan, coal miner Yanzhou Coal Mining surged 5.9 per cent to 9.01 yuan, and Shanghai-traded China Coal Energy and Shenhua Energy both advanced 1.5 per cent to close at 5.33 yuan and 13.94 yuan separately.

The energy sector also shone, after oil prices soared at the end of last week in anticipation of more monetary easing from the European central bank. Futures for March delivery of West Texas Intermediate (WTI) crude spiked 9 per cent on Friday to US$32.19 a barrel, the highest close in two weeks. On Monday, the March contract reached an intra-high of US$32.74 in the Globex electronic session, before pulling back to US$32.09 a barrel.

March Brent crude also soared 10 per cent to US$32.18 a barrel on Friday. It retreated to US$31.99 in Asian trade on Monday.

“Both the Hong Kong and China stock markets will stabilise this week,” said Ben Kwong Man-bun, a director of KGI Asia. “The oil stocks are benefiting the most from the bounce in oil prices. However, investors still seem very cautious, fearing the rally may not go too far,” he added.

Looking ahead, Angus Nicholson, an analyst for IG Group, said the US Federal Reserve and the Bank of Japan will be “keenly in focus” as they were scheduled to hold policy meetings later this week.

“Markets will be watching the Fed statement to start pricing in the most likely date for the next rate hike,” he said, adding that speculations have also grown about a possible further easing move by the BOJ.

However, Nicholson remained cautious about how long the current uptick in sentiment may last.

“It’s difficult to know how long this little resurgence in risk appetite will last,” he said. “China’s Q1 data is set to be very weak, and, when this starts filtering out in March and April, that could really turn global sentiment (and oil).”

Elsewhere in Asia, Japan’s Nikkei Average ended 0.9 per cent higher and Australia’s S&P/ASX 200 moved up 1.8 per cent at close.

With additional reporting by Enoch Yiu