Daily Report

Mainland stocks jump to two-month high as easing hopes rise

Brexit’s profound negative impact, delay in the Shenzhen-Hong Kong Stock Connect, the sliding yuan and weaker growth, mean long-term momentum unlikely

PUBLISHED : Monday, 04 July, 2016, 9:27am
UPDATED : Monday, 04 July, 2016, 10:11pm

Chinese stocks saw a rare rally on Monday amid hopes of more monetary easing policies from global central banks to shore up economic growth after investors priced in the initial impact of Brexit vote.

But analysts said there was little momentum for the benchmarks to soar higher in the short term.

The Shanghai Composite Index closed at 2,988.60, up 1.91 per cent or 56.13 points, its highest point in two months, notching the biggest intraday gain since May 31.

The large-cap CSI300 jumped 1.6 per cent or 50.5 points to 3,204.7, approaching to its two-month high.

The Shenzhen Composite Index advanced 1.57 per cent or 30.96 points to close at 2,001.69, while the Nasdaq-style ChiNex gained 1.7 per cent or 37.53 points to 2,248.71.

Total turnover in Shanghai and Shenzhen was 658 billion yuan (HK$765.8 billion).

In Hong Kong, the Hang Seng Index at one stage soared 371.7 points before ending 264.83 points or 1.27 per cent ahead at 21,059.2, its highest finish in nearly a month.

The Hang Seng China Enterprises Index, or the H-share index, added 1.03 per cent to 8,802.35. Total turnover stood low at HK$68.67 billion.

Xie Jinchao, an analyst at Lukfook Financial, said the A-share rally came after major negative factors were settled for the moment, such as the resumed trading of China Vanke’s A-shares, the latest purchasing and manufacturing indexes for June, and the Brexit referendum.

Vanke, the country’s largest property developer currently embroiled in a battle with its biggest shareholders, plunged by its daily limit of 10 per cent at the open to 21.99 yuan in Shenzhen, as the shares resumed trading after a six-month suspension.

“An obvious sign is that blue-chips like banks and securities firms are leading the rally in the mainland. There is an increase of capital entering the market, hoping to push up the benchmark to 3,000 level,” Xie said.

It seems hard for Chinese officials to maintain an annual growth rate of more than 6.5 per cent without more easing policies
Kenny Wen Kit, wealth management strategist at Sun Hung Kai Financial

But investors will face “very strong” resistance to that 3,000 mark for the Shanghai Composite Index where lots of investors had assets locked up before a quick drop in January, Xie said.

On Friday, the Caixin manufacturing Purchasing Managers’ Index (PMI) for June came in at a four-month low of 48.6 in June. The official manufacturing PMI fell to 50.0 in June from 50.1 in May, also the lowest since February.

“It seems hard for Chinese officials to maintain an annual growth rate of more than 6.5 per cent without more easing policies,” said Kenny Wen Kit, wealth management strategist at Sun Hung Kai Financial.

In Hong Kong, banking, insurance, telecommunications and metals were the biggest gainers.

Cheung Kong Property Holdings shares rose 4.24 per cent to HK$50.45 as Hong Kong’s home prices rebounded for the second months in a row.

China Silver Group shares jumped 11.18 per cent to end at HK$1.79, as the spot silver price soared to its two-year high, due to a higher risk-averse appetite.

Wen said stocks rose due to the reduced possibility of an interest rate hike in the United States after Britain’s vote to leave the EU, and rising chances for monetary stimulus from Japan and Europe to shore up economic growth.

But the profound negative impact of Brexit, the delayed Shenzhen-Hong Kong Stock Connect,a sliding yuan and economic growth in the mainland, are unlikely to mean any long-term momentum for China stocks, Wen said. He expected the Hang Seng Index to hit a ceiling of 21,500.

Additional reporting by Laura He.