China stocks rebound from two-month low, Hong Kong also ends on upbeat note

Chinese stocks eked out modest gains to close higher on Monday, rebounding from a two-month low in Friday’s session, as investors shrugged off a raft of weaker-than-expected economic data released over the weekend.

The Shanghai Composite Index opened lower and dropped as much as 0.8 per cent, but rebounded later in the session on gains in brokerage and banking shares. The index closed up 0.8 per cent or 23.75 points at 2,850.86. On Friday, the index closed at two-month low of 2,827.11.

The large-company tracking CSI300 rose 0.7 per cent or 20.37 points to 3,095.31. The Shenzhen Composite Index advanced 1.7 per cent or 30.70 points to 1,815.03. The Nasdaq-style ChiNext Index ended 1.6 per cent or 32.63 points higher at 2,057.86.

Trading volumes increased, as the combined turnover for Shanghai and Shenzhen markets reached 362 billion yuan (HK$430.8 billion), up from Friday’s 347 billion yuan.

The National Bureau of Statistics reported Saturday that China’s industrial production growth in April eased to 6 per cent from 6.8 per cent in March, weaker than a forecast 6.5 per cent increase in a Reuters survey of analysts. Year-on-year growth in fixed-asset investment also disappointed, slowing to 10.5 per cent in the January to April period. Retail sales growth decelerated to 10.1 per cent in April.

The economic data followed Friday’s release of bank lending figures in April, which also missed market expectations.

Meanwhile, housing sales accelerated to 61.4 per cent year-on-year in the first four months of the year, up from 60.3 per cent in the same period a year earlier.

“Not surprisingly, April activity data released on Saturday showed a broad-based retreat from the strong March readings,” said Larry Hu, an analyst for Macquarie Capital.

UBS economists also said in a note that the momentum of China’s economic rebound eased in April.

However, they said strong housing statistics and credit growth should continue to support the economy in the second and third quarters.

“Strong property sales and new housing starts should underpin property construction and investment, while the impact of earlier policy and credit support on investment have yet to be fully reflected,” UBS analysts said.

Brokerages recorded solid gains after Citibank said in a research report that global stock-index compiler MSCI Inc will likely add mainland Chinese shares to its influential emerging markets benchmark index on June 15, as part of its annual review. The move may benefit brokerages as a result of international investment flows to Chinese equities.

Citic Securities advanced 1 per cent to 15.57 yuan, Huatai Securities rose 0.8 per cent to 15.8 yuan, and GF Securities moved up 0.7 per cent to 15.33 yuan.

Other companies listed by Citi Bank as potential beneficiaries also rose. These include Shandong Gold Mining, which jumped 3.7 per cent to 32.65 yuan, and Poly Real Estate, which advanced 0.7 per cent at 8.96 yuan.

In other trading action, ICBC added 0.5 per cent to 4.24 yuan, and Agricultural Bank of China tacked on 0.3 per cent at 3.06 yuan.

In Hong Kong, the Hang Seng Index also recovered after touching the lowest level in two months on Friday. The index closed 0.8 per cent or 164.66 points higher at 19,883.95. The Hang Seng China Enterprises Index ticked up 0.1 per cent or 11.22 points to 8,312.61.

Investors have an eye on an official Hong Kong visit this week by Zhang Dejiang, chairman of the National People’s Congress Standing Committee and overseer of Hong Kong affairs. He may unveil additional details on the launch of a much-awaited Shenzhen-Hong Kong stock connect scheme. Zhang’s visit will begin on Tuesday.

Alex Fan, managing director of GF Securities Hong Kong, said its unlikely Zhang will announce the new market scheme during the course of his visit, due to both weak trading conditions and political reasons.

“Even if the cross-border stock purchase programme is kicked off, it is unlikely to push both markets immediately higher. For Shenzhen, stocks are already very expensive. While for Hong Kong, there are not many listed companies that are attractive to buy,” he added.

There is already a Shangai-Hong Kong stock connect scheme that allows dual trading between the cities.

He also said his team remained “prudent to pessimistic” about the second quarter outlook for the Hong Kong stock market.

“Sentiments remains low after the People’s Daily published the ‘L’ shaped economic outlook last week,” he said.

An L-shaped economic outlook indicates decline followed by stability.

Additional reporting by Xie Yu