China market rises most in two years as pension funds get OK to invest in stocks

The mainland’s major indices gain more than 2pc; Hong Kong’s benchmark up 1.5pc

PUBLISHED : Tuesday, 07 August, 2018, 7:04pm
UPDATED : Tuesday, 07 August, 2018, 7:07pm

China’s stock market rose the most in two years on Tuesday after the first batch of 14 pension target funds were approved by the China Securities Regulatory Commission, a move that is expected to draw inflows into mainland equities. The Hong Kong market rose in line, with gains led by China Evergrande Group.

Mainland stocks bounced back from their previous lows as the 14 long-awaited funds were allowed to invest in the equities market. Given their long-term nature, the pension target funds – or target retirement funds – were likely to favour A shares that provide high dividends and steady growth, analysts said.

The Shanghai Composite Index rose 2.7 per cent, or 74.22 points, to 2,779.37, marking the biggest daily gain since May 2016. The CSI 300 – which tracks the large caps listed in Shanghai and Shenzhen – increased 2.9 per cent, or 95.60 points, from Monday’s 22-month low, to 3,368.87.

The Shenzhen Composite Index added on 2.8 per cent, or 39.97 points, to 1,495.05 and the Nasdaq-style ChiNext was also up 2.7 per cent, or 38.64 points, to 1,479.44.

Market sentiments continued to stabilise after China’s central bank data showed that the nation’s foreign reserves rose for a second month to US$3.118 trillion in July, exceeding a US$3.107 trillion forecast.

The People’s Bank of China also decided last week to raise the reserve requirement ratio to 20 per cent from zero for financial institutions when they conduct onshore yuan forwards business on behalf of customers, making it more expensive to short the currency.

On Tuesday, the yuan rose 0.4 per cent to 6.8258 against the US dollar, after the PBOC lifted the daily currency reference rate by 0.12 per cent to 6.8431.

In Hong Kong, the Hang Seng Index rose 1.5 per cent, or 429.32 points, to 28,248.88 on the back of a HK$89 billion market turnover, which was below the one-year average of HK$112 billion and indicated a modest upward momentum. The Hang Seng China Enterprises Index also gained 1.5 per cent, or 164.14 points, to 10,866.10.

China Evergrande soared 21.2 per cent to HK$25.20, marking its highest level since May 15, after reporting a positive profit alert on late Monday. China’s top developer said it expected a more than 125 per cent year-on-year rise in its interim post-tax profit and a 100 per cent expansion in core business profit.

The market has dropped a lot previously, providing room for some correction, that is to rebound
Linus Yip, First Shanghai Securities.

Other Chinese developers rose in tandem, with Sunac China Holdings surging 8.2 per cent to HK$23.70 and Country Garden Holdings up 6.4 per cent to HK$11.60. China Resources Land climbed 4.5 per cent to HK$28.05.

Banks were also higher. BOC Hong Kong Holdings gained 4 per cent to HK$39.05 and China Construction Bank was 1.2 per cent higher to close at HK$7.06.

Chinese carmaker Geely Automobile Holdings rose 4.9 per cent to HK$16.98, the second-best performing blue chip after Country Garden.

Pharmaceuticals also rebounded. Sino Biopharmaceutical increased 4.6 per cent to HK$10.08 and CSPC Pharmaceutical Group added 3.8 per cent to HK$19.70.

Oil stocks gained after Saudi crude production unexpectedly fell in July, raising concerns about global supplies as the US prepares to reinstate sanctions against major exporter Iran. PetroChina rose 3.2 per cent to HK$5.88, Sinopec Corp added 2.6 per cent to HK$7.54 and CNOOC was 2.9 per cent higher at HK$12.88.

Sunny Optical Technology Group, mainland China’s largest manufacturer of smartphone camera modules and lenses, rose 3.9 per cent to HK$126.70 and internet giant Tencent Holdings rose 1.1 per cent to HK$357, contributing 30 points to the benchmark index.

“The market has dropped a lot previously, providing room for some correction, that is, to rebound,” said Linus Yip Sheung-chi, chief strategist First Shanghai Securities. “But we still need to see if Evergrande’s rise is sustainable given that the fundamentals have not changed much.”