Hong Kong, mainland China stocks close higher on Beijing pension fund speculation

Hong Kong and mainland Chinese stocks closed higher on Monday following a firmer Wall Street on Friday and on speculation that Beijing would soon start injecting its massive public pension funds into equity markets, which spurred a rally in the banking and insurance sectors.

The Hang Seng Index climbed nearly 1 per cent or 219 points to 23,348, while the Hang Seng China Enterprises index rose 1.62 per cent or 157.03 points to 9,840 at the close.

Banking shares largely led the gains in Hong Kong, mirroring last week’s rally in the US financial sector after US President Donald Trump ordered a review of banking regulations implemented after the 2008 financial crisis. Banks could see large savings in regulatory costs if the regulations are removed.

Hang Seng Bank rose 1.07 per cent to HK$161 at the close on Monday, HSBC climbed 0.84 per cent to HK$66.35 and Bank of China Hong Kong gained 1.14 per cent to HK$3.54.

In addition to the rally in the banking sector, mainland life insurance companies also outperformed, with heavyweight China Life Insurance leading the gains with a 7 per cent rally to close at HK$23, while New China Life Insurance added 6.75 per cent to finish at HK$39.5.

Ping An Insurance and People’s Insurance Company of China (PICC) saw gains of 4.59 per cent and 2.74 per cent respectively.

“Market sentiment was mainly cheered by the pension fund speculation,” said Castor Pai Wai-san, head of research at Core Pacific Yamaichi, adding that although uncertainties over Trump administration actions might still weigh on markets, investors were likely to stay optimistic for the next two or three days.

The speculation came as investors have been waiting for the country’s retirement savings managers to put their money into equities after policy makers announced rule changes in 2015.

Lou Jiwei, president of China’s National Council for Social Security Fund, the body that regulates use of the country’s massive retirement savings, said on the eve of Lunar New Year that some provincial governments were commissioning the council to manage their pension fund portfolios, which sparked speculation that some funds would soon be invested in equities, according to Chinese media reports.

The Shanghai Composite Index rose 0.54 per cent or 16 points to close at 3,156 on Monday while the blue-chip CSI 300 gained 0.26 per cent or 8.71 points to 3,373.20.

The Shenzhen Component Index edged up 0.74 per cent or 73 points to 10,078 and the Nasdaq style ChiNext surged 1.26 per cent or 23 points to finish at 1,900.

Agricultural stocks also led the gains after the Chinese government vowed to accelerate reforms in the farm sector in the year’s first policy statement.

Beijing said in a document released on Sunday it would improve the quality of China’s farm products and boost rural incomes. It will also support agricultural e-commerce and financial institutions serving the rural population.

Separately, the Markit/Caixin services purchasing managers’ index (PMI) released on Monday gave a January reading of 53.1 on a seasonally adjusted basis, slightly down from 53.4 in December. A number above 50 points to expansion of the services sector.

The People’s Bank of China set the yuan reference point against the US dollar at 6.8606, 50 basis points weaker than Friday, the weakest since January 20. The onshore exchange rate is allowed to move up to 2 per cent either side of the reference point for the day.

On Friday, the S&P 500 was up 0.73 per cent to 2,297.42 while the Nasdaq Composite rose 0.54 per cent to 5,666.77. The Dow Jones Industrial Average was back at the 20,000 level after a 0.94 per cent gain to 20,071.46.

Fresh jobs data also boosted market sentiment. An official report showed the US public and private sectors added 227,000 jobs in January, beating the 175,000 forecast by economists in a Reuters poll.

Elsewhere in Asia, Tokyo’s Nikkei 225 finished up 0.3 per cent to 18, 976, also led by gains in banking shares, while South Korea’s Kospi was up 0.22 per cent to 2,077 at the close.

Australia’s S&P/ASX 200 dropped 0.17 per cent to 5,611.80.