China stock market

Hong Kong and China stocks complete best weekly performances since November on yuan and policy prospects

  • The yuan appreciates against the US dollar to its strongest level since July, helping to lift stocks
  • Market mood is bolstered by optimism over trade war progress and expectations about pro-growth policies
PUBLISHED : Friday, 11 January, 2019, 10:32am
UPDATED : Friday, 11 January, 2019, 5:14pm

Hong Kong and Chinese stocks edged up on Friday, with the key benchmarks recording their biggest weekly gains since November, amid a strengthening yuan and mounting expectations that Beijing will roll out more stimulative policies.

The Hang Seng Index on Friday gained 0.6 per cent, or 145.84 points, to 26,667.27, while the Shanghai Composite Index added 0.7 per cent, or 18.73 points, to 2,553.83. Hong Kong’s benchmark ended up the week with a gain of 4.1 per cent, while the mainland’s equity gauge climbed 1.6 per cent in the period.

It was the kind of week traders needed to boost their spirits, as they hope to close the door on last year’s grisly results, when the Hang Seng Index dropped 14 per cent and the Shanghai Composite Index closed down 25 per cent, making it the worst performing major market in the world.

What should traders of Hong Kong, China stocks expect after a year of ‘heaven to hell’?

The yuan strengthened on Friday as much as 0.6 per cent to its highest level against the US dollar since July, as a pause in US interest rate increases eases pressure on the Chinese currency. Its almost 1.9 per cent gain this week was the best performance for a five-day period since July 2005.

The mood of markets this week was also boosted by optimism that trade talks may lead to an end of the US-China trade war as well as hopes for more Chinese government policies to stimulate a weakening economy. Beijing and Washington wrapped up their three days of talks on Wednesday on a positive note, while the Chinese government suggested new incentives are on the way to encourage consumers to buy more cars and home appliances amid disappointing readings of producer prices that indicated contracting factory activities.

China’s vice-premier Liu He ‘likely’ to visit Washington at end of January to continue trade war talks

“Market sentiment is quite positive at the moment, as we have seen good news coming along this week,” said Kingston Lin King-ham, director of securities brokerage AMTD. “If the government rolls out more favourable industry policies, Hong Kong stocks will be given a leg up and [the Hang Seng Index] could even reach 27,000 within the next week.”

Traders will need to parse a deluge of economic data coming in the following two weeks to gauge how the world’s second-largest economy is faring into the start of the new year. The customs office is due to release the December data on exports on Monday and the statistics bureau is to put out data on fourth-quarter growth in the week after next.

Investors including Shenzhen Basaltic Capital Management say the government will need to do more to hold in check decelerating growth beyond last week’s cut in commercial banks’ required reserve ratio.

Telecom stocks on Friday paced the gain by mainland stocks after Miao Yu, minister of Industry and Information Technology, said in an interview with China Central Television that China will issue temporary licences for the fifth-generation wireless network in some cities this year.

Xiaomi CEO Lei Jun silent on US expansion plan amid trade war, focuses on European markets

Telecom stocks that surged by the 10 per cent daily limit include Wuhan Bester Group Telecom and Dr Peng Telecom & Media Group, which rose to 28.03 yuan and 8.31 yuan, respectively. SinoDaan also jumped by 10 per cent to 19.14 yuan.

In Hong Kong, smartphone and home appliances maker Xiaomi rebounded from a record low to snap a run of losses for three consecutive days, rising 3.7 per cent to HK$10.34. A massive sell-off had sent the stock plummeting by 17 per cent over three days through Thursday, with selling from some employees and cornerstone investors after a six-month lock-up period expired on Wednesday.

Country Garden Services Holdings, the Chinese developer’s property management unit, plunged 13 per cent to HK$11.28 on a plan to raise HK$1.94 billion (US$247.4 million) from a placement of 168.8 million shares.