Daily Report

China stocks near 2-week high as test run revealed for trading link

PUBLISHED : Wednesday, 22 June, 2016, 9:06am
UPDATED : Wednesday, 22 June, 2016, 7:30pm

Stocks in China and Hong Kong both closed at their highest levels in nearly two weeks on Wednesday, after news of a system test run by Hong Kong stock exchange reignited hopes of a launch soon of the much-anticipated stock trading link between Shenzhen and Hong Kong.

However, trading volumes fell, with many investors taking money out of the markets, prior to Thursday’s UK referendum on EU membership, the outcome of which is expected to unsettle financial markets.

Shenzhen’s ChiNext Index, which tracks growth enterprises, jumped 2.5 per cent to close at 2,144.82. The Shenzhen Composite Index climbed 1.7 per cent to finish at 1,921.38.

Mainland China’s benchmark Shanghai Composite Index also swung higher by 0.9 per cent or 26.99 points to close at 2,905.55, its best closing level in about two weeks.

“Speculation is high again that the Shenzhen-Hong Kong Stock Connect will come soon,” said Wang Chong, an analyst for Victory Securities.

“Besides, fears have eased after recent polls showed a bigger possibility for Britain to remain in the European Union.”

Speculation is high again that the Shenzhen-Hong Kong Stock Connect will come soon.
Wang Chong, analyst with Victory Securities

Hong Kong Exchanges & Clearing revealed it would launch the system test run next Monday, that could facilitate the trading link. Although the bourse said the launch date is still unclear, stocks reacted positively to the news.

Hong Kong’s benchmark Hang Seng Index also rose 0.6 per cent or 126.68 points to 20,795.12, the highest close in nearly two weeks. The Hang Seng China Enterprises, which tracks Hong Kong-listed Chinese companies, gained 0.7 per cent or 58.71 points at 8,763.11.

Combined turnover for the Shanghai and Shenzhen markets fell significantly, however, to 486 billion yuan from 593 billion yuan in the previous day.

In Hong Kong, turnover rebounded slightly after two straight sessions of declines and reached HK$59 billion, compared with a five-day-low of HK$54 billion on Tuesday.

“Many investors are taking money out of the markets and awaiting tomorrow’s Brexit vote, as volatility in global markets is widely expected no matter what the outcome is,” said analysts from First Shanghai Securities in a Wednesday note.

“They want to hold onto cash and act after the result,” they added.

In trading, brokerage firms and dual-listed shares in Shenzhen and Hong Kong were among the best gainers.

Leading Chinese broker Citic Securities rose 1.4 per cent to 16.06 yuan in Shanghai, while adding 2 per cent to HK$17.12 in Hong Kong.

Rival Haitong Securities improved by 1.2 per cent to 15.36 yuan in Shanghai and advanced 1.8 per cent to HK$12.82 in Hong Kong.

Auto parts manufacturer Zhejiang Shibao rose by the daily limit of 10 per cent in Shenzhen to 28.27 yuan. Its H-shares also surged 7.9 per cent to HK$8.74 in Hong Kong.

Hong Kong Exchanges & Clearing rallied 1.9 per cent to HK$186.3.

Banks rose across the board, after the People’s Bank of China pumped liquidity into money markets for a third straight day. The central bank injected 150 billion yuan to the banking system on Thursday through seven-day reverse bond repurchase agreements, following a combined 280 billion yuan of injection on both Monday and Tuesday through the lending tool.

In Shanghai, ICBC gained 0.7 per cent to 4.44 yuan, and Bank of China rose 0.6 per cent to 3.36 yuan. In Hong Kong, ICBC jumped 2.1 per cent to HK$4.38, and China Construction Bank ended 1.9 per cent higher at HK$4.97.

Overnight, US stocks traded within a narrow range and closed slightly higher, after Federal Reserve Chairwoman Janet Yellen said the central bank would maintain a cautious approach on future interest rate actions in light of a number of risks to financial market stability, in particular the pending UK vote.

With additional reporting from Celia Chen and Vivian Lin.