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China stocks hit 11-month high on Shenzhen connect news, revised Morgan Stanley index target

Shanghai stocks make further gains after entering bull market; Morgan Stanley raises index price target to 4,400 in 2017 on expected loose monetary conditions

PUBLISHED : Monday, 28 November, 2016, 9:11am
UPDATED : Monday, 28 November, 2016, 9:37pm

Chinese stocks extended their bull run for a third session on Monday, closing at the highest level in almost 11 months as investors snapped up equities before next week’s unveiling of the much-anticipated Shenzhen-Hong Kong Stock Connect, which will offer foreign individual investors access to the tech-heavy Shenzhen market for the first time.

Investor sentiment also received a boost after analysts from Morgan Stanley upgraded their ratings on mainland stock markets, forecasting the Shanghai Composite Index to top 4,400 in 2017 as China maintains loose monetary conditions amid a challenging external trade environment after US president-elect Donald Trump takes office.

The Morgan Stanley index prediction is 34 per cent higher than Monday’s Shanghai close of 3,277, up 0.5 per cent or 15.06 points for the day, the highest level since January 6. The index has gained for three days in a row. On November 10, the Shanghai benchmark index closed at 3,196.04, technically entering a bull market with a more than 20 per cent gain from recent lows in late January.

The gains came after Chinese authorities confirmed Friday that the long-awaited Shenzhen-Hong Kong Stock Connect will launch on December 5, enabling foreign investors to directly trade equities in the Shenzhen market and vice versa. The link added to a similar scheme launched in 2014 that granted foreign investors access to the financial and industrial-heavy Shanghai stock market.

On Monday, the Shenzhen Component Index rose 0.3 per cent or 32.34 points to 11,068.87. The large-cap CSI300 index gained 0.4 per cent or 13.78 points to 3,535.08.

Combined turnover for Shanghai and Shenzhen markets increased to 642.1 billion yuan, up from Friday’s 612.4 billion yuan.

The Hang Seng index will have a chance to maintain on the positive side, but actually the upside will not be too much
Castor Pang Wai-san, Core Pacific-Yamaichi International

Among other major indices on the mainland, the Shenzhen Composite Index dipped 0.1 per cent to 2,126.82 and the startup board index ChiNext also nudged 0.1 per cent lower to 2,166.04.

Hong Kong stocks were also lifted by the stock trading optimism on Monday.

The Hang Seng Index added 0.5 per cent or 107.12 points to 22,830.57, the highest close in more than two weeks. The Hang Seng China Enterprises Index climbed 0.9 per cent or 85.31 points to 9,875.54.

Turnover jumped to HK$71 billion from Friday’s HK$56 billion.

The sentiment in Hong Kong’s market was also bolstered after major US indices hit record closing highs at the end of last week, as investors anticipated President-elect Donald Trump would unveil stimulative policies after taking office. Almost US$1 trillion has poured into equities since the real estate mogul’s surprise election victory, according to Bloomberg.

However, analysts caution that the upside for Hong Kong and mainland stock markets may be limited, as the stock connect optimism has been largely priced in.

“The Hang Seng index will have a chance to maintain on the positive side, but actually the upside will not be too much,” said Castor Pang Wai-san, head of research at Core Pacific-Yamaichi International.

China Merchants Securities said the confirmation of the scheme was within people’s expectations. “The announcement doesn’t have any new surprises,” said China Merchants’ analysts Zhao Wenli and Ji Chunhua in a note on Monday.

“The positive impact from the Shenzhen connect scheme is more in the long term. In the short term, we have to be aware of any possible correction after recent rallies,” they said.

Looking ahead, Pang said investors are also watching Italy’s vote in a constitutional referendum on December 4, which could potentially upend the country’s economic reforms and hurt the euro, introducing further market uncertainties.

In terms of stock performances, funds flew into shares that are set to benefit from the Shenzhen trading link, including those with dual listings in Hong Kong and Shenzhen.

Shandong Chenming Paper soared 7.9 per cent to HK$7.82 in Hong Kong, while its A-shares reached the daily increase limit of 10 per cent in Shenzhen to close at 11 yuan.

Zoomlion Heavy Industry Science & Technology jumped 5.5 per cent to HK$3.64 in Hong Kong. Its Shenzhen-listed stock also advanced 1.9 per cent to 4.89 yuan.

Electric car maker BYD climbed 3.4 per cent to HK$47.3, while it gained 0.4 per cent to 55.63 yuan in Shenzhen.

Additional reporting by Sarah Zheng

laura.he@scmp.com

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