A-shares climb after golden week, but property stocks hit by tightening measures

Software, construction and social services firms lead mainland gains while Hong Kong is closed for festival

PUBLISHED : Monday, 10 October, 2016, 9:03am
UPDATED : Monday, 10 October, 2016, 9:57pm

China’s A-share markets climbed on the first trading day after the “golden week” holiday despite property stocks tumbling on new government cooling measures to temper overheating housing markets.

The Hong Kong exchange was closed Monday for the Chung Yeung Festival, a traditional holiday where people pay respects to their ancestors, after rising about 600 points last week.

The Shanghai Composite Index ended the day up 1.45 per cent at 3,048.14 and the CSI 300 Index – which tracks companies with high market capitalisation listed in Shanghai and Shenzhen – increased 1.25 per cent to 3,293.87. The Shenzhen Composite Index gained 1.89 per cent to stand at 2,033.38 while the Nasdaq-like ChiNext rose 2.72 per cent to 2,208.47. The Shenzhen Component Index advanced 1.65 per cent to 10,741.69.

Software, construction and social services sectors were the day’s winners, while property stocks were hit hard after some 20 cities, including Shenzhen and Shanghai, announced tightening measures during the holiday to cool down the house-buying frenzy and surging home prices.

Markets also moved upward on data showing China’s service sector created jobs at the fastest pace in seven months in September.

Steel companies also powered upwards on Monday. Baoshan Iron & Steel and Wuhan Iron & Steel – which announced late last month that they are merging – saw their shares jump by the 10 per cent daily limit.

Software developer Beijing Teamsun Technology jumped 10.03 per cent to 13.27 yuan.

The property sector was the worst performer, losing 1.62 per cent overall.

China Vanke’s shares closed 0.76 per cent lower at 25.97 yuan in Shenzhen, after slumping 5.62 per cent at one point in early morning trade. Future Land Holdings lost 7.68 per cent to 11.66 yuan in Shanghai and Bright Real Estate Group fell 5.28 per cent to 9.33 yuan.

Since the end of September, at least 22 cities have imposed restrictions on home buying and mortgage borrowing.

Zhu Bin, strategic analyst at Southwest Securities, said government intervention in the house market helped push up A-shares after the golden week holiday, despite the fall in the property sector.

“The tightening measures restricted capital flow into the homes market, which will encourage the flow to the stock market. It’s a ‘seesaw effect’. Meanwhile, such intervention reduced the risk of a home market crush,” Zhu said.

An orderly depreciation of the yuan could benefit China’s manufacturers, but a sharp drop – although unlikely – will be a major risk for the mainland stock market, Zhu said.

Onshore yuan on Monday fell 0.45 per cent to 6.7018 to the US dollar after the central bank set the yuan reference rate of 6.7008, its lowest level in six years, in reaction to the rising US dollar, the sudden drop in the pound and the fall of offshore yuan during the holiday.

This weakening of the yuan “is above the closely watched 6.70 level,” and could signal trouble for other emerging currencies, Citi analysts wrote in a note.

Sue Trinh, an analyst at RBC, said in a note that a depreciation of onshore yuan was anticipated after the renminbi officially became part of the International Monetary Fund’s Special Drawing Rights (SDR) currency basket.

Elsewhere in Asia, South Korea’s Kospi rose 0.15 per cent and in Sydney the All Ordinaries gained 0.13 per cent. Markets in Japan and Taiwan were closed for public holidays.

US markets are also suspended on Monday for Columbus Day.

Additional reporting by Sarah Zheng