China stock market

Mainland and Hong Kong stocks rise in response to Trump-Kim summit

‘Mood is still cautious’, however, as key economic data by China for May and interest rate increase by Fed also expected this week

PUBLISHED : Tuesday, 12 June, 2018, 6:32pm
UPDATED : Tuesday, 12 June, 2018, 6:32pm

Mainland stocks rose for the first time in four days on Tuesday, after the United States and North Korea signed a joint declaration aimed at the complete denuclearisation of the Korean peninsula, and as investors weighed the prospects of interest rate increases by the US Federal Reserve and the release of important economic data by China this week. In Hong Kong, the benchmark Hang Seng Index was almost unchanged and added 0.1 per cent.

The Shanghai Composite Index climbed by 0.9 per cent, or 27.02 points, to 3,079.80, snapping three days of losses.

“The historical summit between Trump and Kim will help to improve investors’ risk preference by reducing geopolitical tension in the region,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “At the same time, the mood is still cautious, as we’ll go through lots of big economic events this week.”

The turnovers on the Shanghai and Hong Kong exchanges were low on Tuesday, with the values of stocks that changed hands at least 10 per cent below 30-day averages. Traders exercised caution with the Fed’s rate meeting on Wednesday and the release of key economic data for May by China a day later.

It is almost certain the Fed will raise its benchmark borrowing costs for a second time this year. The probability is now at 100 per cent that the US central bank will do so after the meeting this week, according to Bloomberg data. The People’s Bank of China will probably follow by hiking the interest rate it charges commercial lenders through open-market operations, while the Hong Kong Monetary Authority will have no choice but to follow suit, because of the Hong Kong dollar’s peg to the greenback.

The economic data for May is significant because it will allow investors to get a sense of how China’s economy is faring amid concerns about sustainability, following a slew of bond defaults and slowing property sales. The median estimate of a Bloomberg survey of economists showed the world’s second-largest economy probably held up in May, with key data from industrial output to retail sales likely to match growth rates for the previous month.

Consumer stocks paced the gain in mainland equities, through suspected buying of blue chip companies by overseas investors.

Kweichow Moutai, the biggest distiller by market value of the fiery baijiu liquor, added 3 per cent to 799.19 yuan, taking its market capitalisation past 1 trillion yuan (US$156.2 billion) for the first time in its history. Jiangsu Yanghe Brewery Joint Stock rallied by 6.4 per cent to 149.50 yuan and Gree Electric Appliances, China’s biggest maker of air conditioners, gained by 3 per cent to 50.40 yuan.

Foreign investors have chased mainland stocks through the exchange links with Hong Kong every day since Chinese stocks were added to MSCI’s global gauges on June 1. Net inflows reached 2.7 billion yuan on Tuesday.

In Hong Kong, the Hang Seng Index gained 39.36 points to 31,103.06. The Hang Seng China Enterprises Index, also known as the H-share gauge, climbed by 0.3 per cent.

Apple components provider Sunny Optical Technology added 1.9 per cent to HK$173 after Goldman Sachs raised its price target for the stock by 22 per cent to HK$205, saying a 70 per cent increase in handset lens shipments at the company in May would lead to more market shares.

China New Higher Education Group jumped by 13 per cent to HK$8.39 after Citigroup initiated its coverage of the story with buy ratings.