Daily Report

Shanghai stocks fall to one-month low, Hang Seng pares monthly gains as BOJ disappoints

PUBLISHED : Friday, 29 July, 2016, 9:14am
UPDATED : Friday, 29 July, 2016, 10:10pm

Shanghai stocks fell further on Friday to their lowest close in a month, while Hong Kong shares also ended sharply lower on the last trading day of July, after the Bank of Japan disappointed markets with modest easing moves.

Mainland China’s Shanghai Composite Index dropped 0.5 per cent, or 14.98 points, to end at 2,979.34 points, the weakest level since July 1. For the week, the index fell 1.1 per cent, paring its monthly gains to 1.7 per cent.

The large-cap CSI300 retreated 0.5 per cent, or 17.21 points, to 3,203.93 points. The Shenzhen Composite Index also shed 0.5 per cent, or 9.44 points, to 1,941.56 points. The start-up board ChiNext finished 0.8 per cent, or 17.33 points, lower at 2,122.41 points.

Combined turnover for Shanghai and Shenzhen continued to shrink on Friday, down to 432 billion yuan from 557 billion yuan on Thursday.

“The market sentiment has been weak since the second half of July, as investors turned cautious after the regulators signalled they would tighten rules on stock markets and curb speculative activity associated with hot topics,” said Zhang Fei, a stock analyst from Hunan Nonferrous Metals Group.

“A-share markets are still policy-driven to a large extent,” she added.

In Hong Kong, the Hang Seng Index posted even deeper losses on Friday, down 1.3 per cent, or 282.97 points, to close at 21,891.37 points. It logged a 0.3 per cent loss for the week and trimmed gains for July to 5.3 per cent. The Hang Seng China Enterprises Index, or the H-shares index, declined 1.4 per cent, or 123.88 points, to 8,958.97 points. Turnover rose to HK$68 billion from Thursday’s HK$63 billion.

“The Bank of Japan’s decision ... to refrain from meaningful easing once again has disappointed investors and resulted in a renewed strengthening of the yen,” said Marcel Thieliant, an analyst for Capital Economics.

Japan’s central bank announced earlier on Friday that it would increase buying of exchange-traded funds (ETF) from 3.3 trillion yen to 6 trillion yuan, but would keep interest rates steady. The decision disappointed many investors who expected more aggressive easing actions from the bank in order to reflate the Japanese economy.

Thieliant said nearly half of analysts in a survey on the markets had expected an increase in the pace of expansion of the monetary base, while half were expecting a cut in the interest rate on excess reserves.

“[The] decision was a clear disappointment, and the US dollar per yen slumped,” he added.

Zheng Lei, a director for CMBI International Capital, said that a stronger yen could cause the “carry trade” in the Japanese currency to wane, which would mean less “hot money” in Hong Kong stock markets.

“Carry trade” is a common foreign-exchange strategy, in which investors borrow low-interest-rate currencies, usually the yen, in order to buy currencies with higher yield rates.

On the markets, metals stocks were among top decliners in Shanghai and Hong Kong.

Gold miner Zijin Mining Group sank 4.4 per cent to HK$2.82 in Hong Kong, while its Shanghai-listed shares fell 2 per cent to 3.47 yuan. Jiangxi Copper lost 2.7 per cent to HK$8.89 in Hong Kong and fell 1.8 per cent to 14.48 yuan in Shanghai. Aluminum Corp of China declined 1.6 per cent and 1 per cent in Hong Kong and Shanghai respectively, closing at HK$2.50 and 3.85 yuan.

Tongling Nonferrous Metals Group moved down 1.2 per cent to 2.57 yuan in Shenzhen.

Oil stocks were also weak after crude futures extended their losing streak to a sixth session overnight in New York.

In Hong Kong, offshore Chinese oil producer CNOOC gave up 2.9 per cent to HK$9.28, after issuing a profit warning for the first half of this year. PetroChina finished down 1.9 per cent at HK$5.26. In Shanghai, refining giant China Petroleum & Chemical Corp closed 0.8 per cent lower at 4.78 yuan.