China stocks record best day in seven sessions boosted by financials and pharmaceuticals, as investors bargain hunt
- A return of foreign money lifted investors’ sentiment
- Chinese brokerages advance on merger speculation
China stocks gained the most in more than a week on Wednesday, while Hong Kong market also rose, as investors looking for bargains piled into financials and pharmaceuticals after a recent pullback.
The Shanghai Composite Index advanced 2.1 per cent to 3,294.55, recording its best daily performance in seven trading sessions. The benchmark has been consolidating amid China’s rising tensions with the US for the past two weeks, after a rapid run-up sent it to a two-year high on July 13.
The CSI 300 Index of large caps listed in Shanghai and Shenzhen added 2.4 per cent. And the STAR 50 index, the official gauge for companies listed on the technology-focused Star Market board in Shanghai, jumped 5.5 per cent.
The Hang Seng Index also gained 0.5 per cent to 24,883.14. The Hang Seng Tech Index, newly launched to track the 30 largest technology firms listed in Hong Kong, advanced 1 per cent.
“The rally today among securities brokerages, which is a key signal for a bull market, shows investors’ confidence in the market has recovered after the recent slump,” said Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management.
Investors’ sentiment also received a boost from an influx of foreign capital, as the net inflow into China’s domestic markets through the Stock Connect programme in Hong Kong reached 10 billion yuan (US$1 billion), its highest level since July 6, snapping a four-session streak of net outflow.
The offshore money is increasingly dominated by long-term investment funds instead of short-term speculative traders, and is likely to refocus on their favourites – consumers stocks, financial institutions and tech growth stocks – after the recent withdrawal from the Chinese market, said Zhang Qiyao, an analyst at Guosheng Securities.
“Going forward, long-only funds are still the major forces in northbound inflow, and we expect over 100 billion yuan worth of additional funds to flow in over the second half of the year,” he said.
In Hong Kong, the market is waiting for further monetary policy signals from a US Federal Reserve policy meeting on Wednesday and Thursday. The Fed is expected to maintain its dovish stance, after promising to keep interest rates at a near-zero level before the impact of the Covid-19 pandemic passes.
The bank faces a deepening legal battle over the arrest of Meng Wanzhou, chief financial officer of Huawei Technologies in Canada. The Chinese telecom giant is considering all possible options against HSBC for allegedly presenting “misleading evidence” that resulted in Meng’s arrest, the Post reported. Shares of HSBC have plummeted by 40 per cent this year.
On the mainland, Chinese securities brokerages gained broadly on renewed speculation that two of China’s biggest brokers are planning to merge. CSC Financial, the country’s second-largest brokerage, soared 7.9 per cent in Shanghai to 49.85 yuan, while its Hong Kong-listed shares also surged 8.3 per cent to HK$11.72.
Investors pored through the updated corporate by-laws of CSC Financial released on Tuesday night, and found several clauses similar to that of Citic Securities, the nation’s No. 1 brokerage. The two firms have denied media reports about the merger previously.
Citic Securities rose 4.3 per cent to HK$18.44 in Hong Kong, while its A-shares added 4.8 per cent to 29.77 yuan.
Biopharmaceutical companies and vaccine makers also surged, on higher hopes that development of a treatment for the Covid-19 pandemic is accelerating after Boston-based biotech firm Moderna launched a late-stage vaccine trial.
Chongqing Zhifei Biological Products, a maker of vaccines listed in Shenzhen, soared by the daily limit of 10 per cent. Drug maker Fosun Pharmaceutical gained 4.4 per cent to HK37.05.
Wuxi Biologics, a Chinese maker of biological medicine, climbed 4 per cent to HK$156, after forecasting its net profit will jump by 58 per cent in the first half of the year from the same period last year. The profit surge was in part a result of increased client projects related to developing potential treatments for the Covid-19 pandemic, the company said in a filing.
Consumer stocks such as home appliance makers soared on optimism over China’s consumption growth in the second half of the year. Midea Group, one of the largest makers of air conditioners in the country, added 6.7 per cent to 71.63 yuan. Its rival Gree Electric Appliances also rose 4.3 per cent to 59.4 yuan.
IMAX China, the provider of widescreen movies in China, rose 2.5 per cent to HK$11.54, after announcing 401 out of its 700 theatre network in the country have resumed operations after authorities gave the green light to reopening recently. The company reported a loss of US$35 million for the first half of the year, compared with a profit of US$24 million in the same period last year.
Kweichow Moutai, the most valuable company listed in China, recouped losses during the day and ended 0.1 per cent higher at 1,672 yuan. The liquor maker reported 8.9 per cent growth in the second quarter, below the market consensus expectation of 12 per cent, according to a Jefferies report.
A number of analysts have raised their target prices for the company, however, citing additional growth that was not reflected in the earnings report. Chinese investment bank CICC boosted its 12-month target for the stock by 25 per cent to 2,109 yuan. Guosen Securities also raised its target to a range between 1,792 yuan and 1,880 yuan, from 1,314 yuan to 1,396 yuan.
