China stocks extend global rally on heightened PBOC easing hopes

PUBLISHED : Monday, 11 July, 2016, 9:20am
UPDATED : Tuesday, 12 July, 2016, 7:06pm

Following a Friday rally on Wall Street, Hong Kong and Shanghai stocks continued their upward trend on Monday, as China’s weak consumer inflation in June heightened expectations for more aggressive monetary easing from the central bank, while the surprisingly strong US jobs data has sparked a risk appetite for equity markets.

The Hang Seng Index advanced 1.54 per cent or 316.33 points to close at 20,880.50, the highest level in a week. The Hang Seng China Enterprises Index, or the H-shares index, climbed 2 per cent or 168.21 points to 8,703.00, marking its biggest daily percentage gain in three months. Turnover jumped, up more than 20 per cent to HK$61 billion from Friday.

“Investors are now seeking to buy into US dollar assets, which helped boost Hong Kong stocks as the Hong Kong dollar is pegged with the US dollar. The mainland stock market is also looking stable as market players expect the central government will have more measures to boost the weak economy,” said Ben Kwong Man-bun, executive director of KGI Asia.

Investors need to be cautious that the market may go down again if there is some negative news or economic data
Ben Kwong Man-bun, KGI Asia

On Sunday, the National Bureau of Statistics reported China’s consumer price index (CPI) increased 1.9 per cent in June from a year ago, decelerating from May’s 2 per cent rise, as food prices grew at a slower pace. The number was well below the government’s target inflation level of 3 per cent, perceived by analysts as giving the central bank more room to potentially ease policy.

“We continue to expect accommodative monetary policy, with three more cuts to the bank reserve requirement ratio (RRR) and one interest rate cut in second half of this year,” said Yang Zhao, an analyst for Nomura.

In the meantime, figures showed China’s producer deflation eased further in June, with the Producer Price Index dropping 2.6 per cent in June, compared with a 2.8 per cent fall in the previous month.

Over on the mainland, the benchmark Shanghai Composite Index edged up 0.2 per cent or 6.83 points to 2,994.92. The large-cap CSI300 gained 0.3 per cent or 11.05 points to 3,203.33. However, the Shenzhen Composite Index dropped 0.6 per cent or 11.31 points to 2,000.98. The startup board ChiNext Index lost 0.9 per cent or 20.41 points to 2,218.59.

Stocks received an added boost from a stronger-than-expected employment report from the US on Friday, as the US economy added 287,000 jobs in June, far exceeding market expectations. The S&P 500 index jumped 1.5 per cent to its second highest close in history.

In Asia on Monday, Japan’s Nikkei Average surged 4 per cent, its best daily performance since February, party driven by a landslide victory by Prime Minister Shinzo Abe’s ruling coalition in the upper house election.

Going forward, Kwong from KGI Asia suggested investors should not rush into the market, as confidence is still fragile due to a lot of uncertainties, including weak economic growth in China and Europe.

“Investors need to be cautious that the market may go down again if there is some negative news or economic data,” Kwong said.

In Hong Kong, market shakers included Chinese online major Tencent Holdings, up 1.7 per cent to HK$180, telecoms giant China Mobile, up 1.4 per cent to HK$88.7, and Hong Kong subway operator and property developer MTR Corporation, rising 2.3 per cent to HK$40.4. Gold stocks continued to rank among the top gainers, as the H shares of Zijin Mining improved by 3.8 per cent to HK$3.02, and Zhaojin Mining pulled higher by 3.3 per cent to HK$9.62.

In Shanghai, both Zijin Mining and Chifeng Jilong Gold Mining soared 10 per cent limit-up, ending at 4.05 yuan and 22.56 yuan respectively. Shandong Gold Mining spiked 4.8 per cent to 2.24 yuan.