Hong Kong, China stocks end higher in cautious trade as PBOC signals tightening

Hang Seng Index index finishes 0.4 per cent higher while Shanghai Composite tacks on 0.2 pc

PUBLISHED : Wednesday, 25 January, 2017, 9:07am
UPDATED : Wednesday, 25 January, 2017, 11:01pm

Hong Kong and Chinese stocks nudged higher in pre-holiday thinned trade on Wednesday, while mainland bond markets tumbled after the People’s Bank of China on Tuesday unexpectedly raised interest rates on medium-term loans for the first time since 2014, sending a tightening bias signal.

The Shanghai Composite Index edged up 0.2 per cent to close at 3,149.55, up for a fourth consecutive session. The Shenzhen Composite Index also rose 0.4 per cent to end at 1,904.04.

However, combined turnover for Shanghai and Shenzhen shrank 7 per cent to 283 billion yuan from Tuesday.

In observance of the Lunar New Year holiday, financial markets in Hong Kong will shut from Friday and reopen on Wednesday. Mainland stock markets will close from Friday and resume trading the following Friday.

Among other major indexes, the large-cap CSI300 Index gained 0.3 per cent to 3,375.9. The Shenzhen Component Index closed up 0.4 per cent at 9,977.96. The Nasdaq-style ChiNext Index finished 0.5 per cent higher at 1,870.70.

Hong Kong’s Hang Seng Index followed an overnight rally in US equities to close higher by 0.4 per cent at 23,049.12. The Hang Seng China Enterprises Index edged down 0.2 per cent to 9,742.32.

Turnover for Hong Kong eased to HK$53.7 billion, down 11 per cent from Tuesday.

“Total margin loans and debt financing in Shanghai and Shenzhen fell to the lowest level in more than three months, indicating that investors are reluctant to enter the market before the long holiday break,” said Hannah Li, an analyst for UOB Kay Hian.

“The same case applies to Hong Kong markets,” she added, expecting the Hang Seng Index to remain in a tight range around the 23,000 level.

“Overall the market is quiet,” said Kingston Lin King-ham, director of securities brokerage at AMTD. “We are all waiting for the Lunar New Year holiday.”

On the mainland, bond prices fell sharply. The Chinese 10-year treasury bond futures for March delivery dropped as much as 0.9 per cent to a one month low. The Chinese five-year treasury bond futures for March delivery briefly dipped 0.52 per cent to its lowest level since December 27.

The five-year treasury bond yield jumped 10.7 basis points to 3.08 per cent. Yields on 10-year notes also surged 6.88 basis points to 3.35 per cent, the highest level in more than a month.

The bond selling came after the People’s Bank of China on Tuesday raised the one-year rate for its medium-term lending facility (MLF) from 3 per cent to 3.1 per cent. The six-month rate was also increased to 2.95 per cent from 2.85 per cent.

The move was regarded as a signal that the central bank may end its accommodative monetary policy amid rising inflation.

“The operation points to the PBOC’s prudent monetary policy stance with slight tightening bias and suggests that the previous huge liquidity injection was not easing,” said Ken Cheung, a strategist for Mizuho Bank.

“Supporting growth is likely to be secondary to China in 2017 and the Chinese authorities are determined to push forward deleveraging and curb asset bubbles especially in the overheated property market,” he said.

Among individual stocks, Chinese online giant Tencent gained 1.5 per cent in Hong Kong to close at HK$200.8, after rival Alibaba posted a strong growth in its quarterly results.

Hong Kong’s top broadcaster Television Broadcasts (TVB) soared 11 per cent to HK$29.6 after it announced a HK$4.21 billion share buyback plan. Bank of America Merrill Lynch, which acted as the financial adviser on the deal, upgraded the stock to a “buy” rating earlier this month, citing an improving retail market and TVB’s positive business strategy, according to financial information website AAStocks.

Shaw Brothers Holdings, a subsidiary of TVB, also jumped 6.6 per cent to 81 Hong Kong cents.

Macau casinos also shined, as Galaxy Entertainment advanced 2.4 per cent to HK$36.45, and Sands China rose 1.3 per cent to HK$35.35.