China stocks jump as deflation shows signs of easing

Chinese stocks jumped above the 3,000-point level on Monday, reversing a three-day decline, after producer price deflation showed signs of easing in March, while investors also cheered a plan by the country’s top securities regulator to lower net capital ratio for brokerages.

The Shanghai Composite Index advanced 1.6 per cent, or 49 points, to close at 3,033.96. The large-cap CSI300 rose 1.4 per cent, or 44.37 points, to 3,230.10.

The Shenzhen Composite Index improved by 2 per cent, or 38.16 points, to finish at 1,952.48. The Nasdaq-style ChiNext Index swung higher by 2.4 per cent, or 53.21 points, to settle at 2,283.14.

Turnover on Shanghai and Shenzhen markets increased to 667 billion yuan from 585 billion yuan in the previous session.

In Hong Kong, the Hang Seng Index ended up 0.4 per cent, or 70.41 points, at 20,440.81 after swinging between gains and losses. The Hang Seng China Enterprise index was 1.2 per cent, or 102.25 points, higher at 8,807.06.

Earlier in the day, data from the National Bureau of Statistics showed China’s producer price index fell less than expected by 4.3 per cent from a year earlier in March, easing from a 4.9 per cent decline in February. On a monthly basis, the PPI rose 0.5 per cent, the first month-on-month increase since early 2014.

“This is likely a function of both demand stabilisation, led by the property market and infrastructure investment, as well as the recovery in international commodity prices,” said HSBC analysts Julia Wang and Jing Li in a note on Monday.

JP Morgan also said a moderation in PPI deflation could help to ease the drag on industrial companies’ revenues and profits.

Data also showed the consumer price index rose 2.3 per cent in March from a year ago, a little below estimate but unchanged from February’s tally, mainly driven by high food prices due to cold weather and tight supply.

HSBC said it expects food prices to continue to normalise and full-year CPI inflation to come in “comfortably” below the government’s 3 per cent target for 2016, “leaving the PBOC with ample room to ease further and support growth”.

Better-than-expected data bolstered stocks in the industrial sector. Shanghai-listed Wuhan Iron and Steel and Liuzhou Iron & Steel both soared by the daily limit of 10 per cent, closing at 3.49 yuan and 4.2 yuan respectively. Anhui Conch Cement climbed 3.4 per cent to 17.05 yuan.

The brokerage sector also attracted significant fund inflows, after the China Securities Regulatory Commission announced on Friday it planned to revise risk-management rules of brokerages, including reducing the net-assets-to-liabilities ratio to 10 per cent from a minimum of 20 per cent.

In China, Huatai Securities rallied 3.6 per cent to 17.09 yuan, Citic Securities advanced 2.8 per cent to 17.41 yuan, and Haitong Securities was up 1.9 per cent at 14.45 yuan.

Bank of China moved up 0.9 per cent to 3.39 yuan in Shanghai and 0.3 per cent to HK$3.09 in Hong Kong, brushing off news the Bank of Italy is conducting an on-site inspection at the Chinese bank’s Italian offices, which are already facing money-laundering accusations.

Additional reporting from Jennifer Li