Daily Report

Profit-booking prunes gains on mainland, Hong Kong bourses

Stocks related to Shenzhen-HK Stock Connect in the limelight after State Council gives green light to trading link

PUBLISHED : Tuesday, 16 August, 2016, 9:13am
UPDATED : Tuesday, 16 August, 2016, 10:26pm

Chinese stocks retreated from a seven-month closing high on Tuesday, as investors booked profit on recent gains in financial shares.

However, the nation’s top homebuilder China Vanke led the surge in the property sector, after major shareholder Evergrande increased its stake in the company amid an ongoing ownership tussle.

Mainland China’s benchmark Shanghai Composite Index dropped 0.5 per cent or 15.16 points to close at 3,110.04. The index jumped 2.4 per cent on Monday to its highest close since early January, bolstered by growing expectations of an early announcement of the Shenzhen-Hong Kong Stock Connect scheme.

After the market closed, the central government published a statement saying that the State Council, China’s cabinet, has approved the Shenzhen-Hong Kong Stock Connect and that “everything is basically ready”. However, the statement did not mention any specific launch date.

Alex Kwok, an analyst for China Investment Securities, said ‘concept’ stocks related to the Shenzhen-Hong Kong Connect “will become the market focus in the short term”, adding these might include brokerage firms and tech stocks.

The large-cap CSI300 lost 0.5 per cent or 15.17 points to 3,378.25. The Shenzhen Composite Index fell 0.7 per cent or 13.56 points to 2,036.8. The Nasdaq-style ChiNext Index was off 0.4 per cent or 7.89 points to 2,201.1.

Combined turnover for Shanghai and Shenzhen markets dropped 5 per cent to 710 billion yuan (HK$832.9 billion) against Monday’s 751 billion yuan. On Monday, the combined turnover surged 76 per cent from the prior session.

Financial shares dragged the indexes lower following strong gains on Monday. Banking stocks fell broadly, with ICBC down 3.1 per cent to 4.44 yuan, Bank of China by 2.8 per cent to 3.46 yuan, China Construction Bank by 2.6 per cent to 5.32 yuan and Agricultural Bank of China by 1.5 per cent to 3.2 yuan.

Hong Kong’s market is facing resistance at the technical level of 23,000...but market sentiment is positive recently on hopes for the Shenzhen Hong Kong Stock Connect
Sam Chi-yung, South China Research

China Life Insurance declined 1.9 per cent to 21.97 yuan, while rival Ping An Insurance fell 1.8 per cent to 33.95 yuan. New China Life Insurance also gave up 2.1 per cent to 45.69 yuan.

The property sector, however, took cheer from the Vanke announcement. Vanke’s Shenzhen-listed shares soared by the daily limit of 10 per cent for a third consecutive session, closing at 27.57 yuan, the highest level on record.

On Monday, Evergrande announced that it had raised its stake in Vanke to 6.8 per cent and became the company’s third largest shareholder.

Till date, Evergrande has spent 14.6 billion yuan to acquire stake in Vanke, a company that has been embroiled in a corporate takeover battle with its largest shareholder Baoneng Group, which has accumulated its stake to 25 per cent since last year.

Elsewhere in the property sector, China Calxon Group, Langfang Development, Zhejiang Guangsha all rose 10 per cent. Shanghai Lujiazui Finance & Trade Zone Development advanced 8.4 per cent, and Gemdale Corporation by 6.7 per cent.

In Hong Kong, the Hang Seng Index also nudged lower after hitting its highest close in nine months, down 0.1 per cent or 21.67 points to 22,910.84. The Hang Seng China Enterprises Index, or the H-shares index, closed almost flat at 9,707.99.

“The Hong Kong market is facing resistance at the technical level of 23,000 ... but market sentiment is positive recently on hopes for the Shenzhen–Hong Kong Stock Connect. The increase in daily turnover will lend support to the market,” said Sam Chi-yung, senior strategist with South China Research.

Chinese real estate developer China Resources Land pulled back 2.1 per cent after recent gains.

Tencent Holdings gained 2.3 per cent to HK$195.4, before the scheduled release of its half-year results on Wednesday. Dalian Wanda Commercial Properties also rose 2.5 per cent to HK$52.5, after shareholders approved the company’s delisting plan from the parent company Dalian Wanda Group.