Hong Kong, China stocks end Monday flat as investors shy away from big bets ahead of trade talks, Fed meeting
- Hang Seng Index narrows morning’s gains to end 0.03 per cent higher
- Shanghai Composite Index down by 0.18 per cent
Stocks listed in Hong Kong and mainland China ended flat on Monday, with key benchmark indices giving up gains made during the day as investors stayed away from big bets ahead of what could be an eventful week.
In Hong Kong, the Hang Seng Index ended at 27,576.96, up 0.03 per cent, following a strong performance by some Chinese banking stocks. China Construction Bank rose by 0.88 per cent to HK$6.88 and Ping An gained by 0.55 per cent to HK$73.8, while Bank of China gained by 0.28 per cent to HK$3.6. Turnover for the main board stood at HK$94 billion (US$11.98 billion).
Investors will draw more clues from the United States this week, where a new round of US-China trade talks is expected to take place. Senior figures from both sides will try and reach a deal before a 90-day trade truce expires on March 1. Meanwhile, a meeting of the Federal Open Market Committee (FOMC) on January 29-30 will provide indications about whether the US Federal Reserve will pause further rate increases this year, as is widely expected by the market.
“Most market participants are expecting the Federal Reserve will not hike rates at the conclusion of the two-day meeting this week. There is general expectation the Fed will maintain a more dovish stance compared with the last FOMC meeting, in December,” said Alex Wong, a director at Hong Kong financial services company Ample Finance Group.
In Beijing, the People’s Bank of China (PBOC) said last week it would launch a central bank bills swap mechanism for dealers engaged in open-market operations, allowing them to swap perpetual bonds issued by Chinese banks for central bank bills. The move is expected to bolster liquidity for perpetual bonds, and is being viewed as encouraging more bond issuances by banks.
The move by the central bank follows a 40 billion yuan perpetual bond issue approval for the Bank of China, the first of its kind in the country. China’s banking regulator said perpetual bonds are a way of improving capital adequacy ratios at lenders, and are expected to help banks boost lending and support for the real economy.
“The perpetual bond and the central bank bill swap mechanism is quite an interesting idea. If these (swaps) are conducted effectively, [it in effect means] the PBOC is using central bank bills to recapitalise banks,” said David Cui, head of China equity strategy at Bank of America Merrill Lynch.
“The intended end result is that banks will have more capital, and be more willing to lend. Let’s see if the mechanism will translate into a sharp acceleration in loan growth,” he added.
On the mainland, the benchmark Shanghai Composite Index edged down by 0.18 per cent, or 4.74 points, to 2,596.98. Its total turnover stood at 127.5 billion yuan.
Health care stocks such as Jiangsu Hengrui Medicine, which dropped 7 per cent to 54.82 yuan, and the Industrial and Commercial Bank of China, which was down by 0.36 per cent to 5.5 yuan, led the gauge lower.
Other key indices also ended the day slightly lower. The Shenzhen Component index lost 0.08 per cent, or 5.87 points, to 7,589.58 and the CSI 300 edged down 0.02 per cent, or 0.69 points, to 3,183.78. Turnover at the Shenzhen index was 172.3 billion yuan.
Also on Monday morning, China’s National Statistics Bureau released industrial profit figures that show a 1.9 per cent decline in December 2018 from a year ago. This represents a second straight month of declines and the worst monthly performance since the end of 2015, as economic growth slows and manufacturing output growth remains under pressure.
Industrial profit growth has now fallen for eight consecutive months since April, dragging full-year growth down to 10.3 per cent, compared with 21 per cent in 2017, according to the bureau’s data.
