China’s stock index jumps 2 per cent on optimism regulators will enact looser rules on financial products

PUBLISHED : Friday, 20 July, 2018, 5:29pm
UPDATED : Friday, 20 July, 2018, 5:45pm

China’s stocks rose for the first time in six days, led by financial companies, on expectations that policymakers will implement looser rules overseeing the vast pool of financial products, adding to evidence that regulators are going soft on the deleveraging campaign of squeezing excessive liquidity.

The Shanghai Composite Index surged 2.1 per cent in a rally that started in the afternoon session on Friday, snapping a five-day, 2.3 per cent loss. Shares worth 348.1 billion yuan (US$51.4 billion) changed hands on the Shanghai and Shenzhen exchanges, the most in a week.

Hong Kong’s Hang Seng Index also ended the day higher.

The yuan also reversed intraday losses in both onshore and offshore trading on speculation of intervention by the central bank.

The rally in equities was spurred by a report from the 21st Century Business Herald that policymakers will finally implement less stringent rules on asset management and wealth management products offered by financial institutions.

Publicly sold products will be allowed to invest in some non-standard assets, referring to securities that do not trade on exchanges or the interbank market, banks will be given more freedom to convert shadow bank lending to loans on the balance sheet, and lenders will be allowed to rectify wealth management products on their own, the report said.

An earlier report from China Business News said this week that the central bank will provide funds to banks that invest in lower-rated corporate bonds, adding to evidence that the government is shifting to more growth biased policies.

“That has exceeded market expectations and milder rules tantamount to injecting liquidity into the economy,” said Wu Kan, a fund manager at Shanshan Finance, in Shanghai. “Investors welcome the news. The market is now at a bottom range and even if it declines further, the room will be very limited.”

The market is now at a bottom range and even if it declines further, the room will be very limited
Wu Kan, fund manager, Shanshan Finance

The Shanghai Composite Index jumped 56.73 points to 2,829.27 on Friday, paring the week’s loss to 0.1 per cent. The CSI 300 Index of big caps gained 1.9 per cent and the ChiNext gauge of smaller companies added 1.2 per cent.

Still, the Shanghai Composite remains down 14 per cent this year, the worst-performing benchmark among the world’s major markets, amid anxiety that deleveraging aimed to reduce debts among banks and companies will derail growth and a trade dispute with the US will intensify.

A gauge of banks, brokerages and insurers on the CSI 300 rallied 3.8 per cent on Friday, the steepest gain since August 2016. Bank of Chengdu jumped by the 10 per cent daily limit to 8.86 yuan. China Merchants Bank climbed 6.9 per cent to 27.38 yuan and Industrial and Commercial Bank of China rose 5.8 per cent to 5.47 yuan.

New China Life Insurance surged 9.3 per cent to 49.67 yuan and Nanjing Securities gained 6.9 per cent to 11.31 yuan. Anxin Trust rallied 9.9 per cent to 7.08 yuan.

“The final version of the rules on asset management products stands a big chance of being loosened,” said Li Lifeng, a strategist at Sinolink Securities, in Shanghai. “This adds to further signs that regulatory policies on deleveraging are getting softer apparently.”

In Hong Kong, the Hang Seng Index added 0.8 per cent, or 213.62 points, to 28,224.48. The Hang Seng China Enterprises Index, or the H-share gauge, gained 1.5 per cent.

Utilities led the charge. China Resources Power Holdings rose 2.7 per cent to HK$15.24 and Hong Kong & China Gas advanced 2.7 per cent to HK$16.22.