Chinese stocks rise to two-week high as machinery makers surge on price increase expectations
The Shanghai Composite Index edges up 0.8pc to 3,306.13
Mainland stocks rose to the highest level in two weeks on Tuesday, as XCMG Construction Machinery led machinery makers higher on expectations about increasing industry-wide prices, while gas suppliers jumped by the daily limit amid surging liquefied natural gas prices.
The Shanghai Composite Index added 0.8 per cent, or 25.66 points, to 3,306.13. The CSI 300 Index gained 0.3 per cent. Hong Kong’s market remains shut on Tuesday for a public holiday and will reopen Wednesday.
Combined turnover on the Shanghai and Shenzhen exchanges totalled 360.9 billion yuan (US$55.2 billion) on Tuesday, about a fifth lower than the daily average for the year.
The Shanghai Composite has been consolidating over the past three weeks, after a sell-off in the year’s best-performing stocks including liquor and insurance companies sent the benchmark down as much as 5.3 per cent from this year’s high set on November 13. Still, the index remains up 6.5 per cent for the year.
“The market is in a fluctuating mode and it’s unlikely to break out of it towards the year end when liquidity is pretty tight,” said Wei Wei, a trader at Huaxi Securities in Shanghai. “There will be some thematic investment opportunities but the performance on the broader market will be muted.”
The pullback on Chinese stocks is close to its end, according to Xun Yugen, a strategist at Haitong Securities in Shanghai. He said recent trading volume and turnover have already dropped to levels seen in the previous three retracements this year.
A measure of industrial companies jumped 1.3 per cent on Tuesday for the biggest gain among the industry groups after Guotai Junan Securities and Zhongtai Securities said global machinery giant Komatsu will raise product prices in China starting January 1.
XCMG Construction surged by the 10 per cent daily limit to 4.50 yuan, the highest close in two years. Sany Heavy Industry jumped 7.3 per cent to 9.08 yuan and Zoom Heavy Industry Science and Technology added 5.2 per cent to 4.49 yuan.
Komatsu’s increases in product prices ranging from excavators to wheel loaders indicate clearance of inventories at dealers and improvement in demand, said Guotai Junan analysts Huang Kun and Li Yu in a report. The price increases will extend to domestic makers from the Japanese rival and the industry’s profitability will see an improvement, it said.
Changchun Gas jumped 10 per cent to 8.86 yuan and Foshan Gas Group also surged 10 per cent to 30.10 yuan. China’s liquefied natural gas prices have more than doubled to 7,409.8 yuan per tonne over the past three months through last week amid strained supply.
Shanghai Material Trading led the gains among companies based in the biggest commercial city in China after the State Council approved an urban plan for the municipality.
Shanghai Material, the trading firm that imports and exports products ranging from fuel oil to automobiles and machinery, surged 4.7 per cent to 12.99 yuan. Shanghai Lujiazui Finance & Trade Zone Development advanced 2.3 per cent to 19.80 yuan and Shanghai Pudong Road & Bridge Construction added 2.5 per cent to 9.39 yuan.
The city should set the goal of building itself into a global metropolis, which can take on a bigger role in serving the nation’s Belt and Road Initiative, the free-trade zone programme, and deepen reforms aimed at further opening up the country, the cabinet said in a statement last night. The city’s population will be capped at 25 million by 2035, it said.
China Eastern Airlines rose 4.3 per cent to 8.32 yuan for the highest close in two years. China Southern Airlines climbed 2.7 per cent to 12.30 yuan while Air China added 1.7 per cent to 12.35 yuan.
The recent strength in the yuan stoked optimism that the local currency’s appreciation will cut levels of foreign debt by Chinese airlines. The yuan has gained 1.6 per cent against the US dollar over the past three months.