Hong Kong, mainland stocks post back-to-back monthly gains as latest data out of China signals continued recovery
- China manufacturing PMI shows continued expansion, beats expectations
- China top policymakers vow to extend support for economy in second half of year
China stocks gained on Friday to finish their best month in more than a year, while Hong Kong stocks dipped, as investors assessed the sustainability of China’s economic recovery amid emerging new clusters of the coronavirus.
On the last trading session of July, the Shanghai Composite Index ended 0.7 per cent higher at 3,310.01. The benchmark advanced nearly 11 per cent for the month, the most since February 2019. That came after June’s monthly gain of 4.6 per cent.
Traders are debating whether the Chinese onshore markets could pick up the strong momentum that set off a powerful rally at the beginning of July, after the Shanghai Composite consolidated around the 3,300-point level for more than two weeks.
In Hong Kong, the Hang Seng Index gave up early gains and fell 0.5 per cent 24,595.35. The benchmark returned 0.7 per cent over July, amid a roller-coaster ride in investor sentiment that sent the index up by as much as 10 per cent and then falling down to surrender the gains.
It was the Hong Kong market’s first back-to-back monthly gain in 2020, however, following June’s 6.4 per cent advance, and only its third in a year in which the black swan coronavirus upended supply chains, work and school, and accelerated consumer transition to new economy products like telemedicine and teleconferencing.
The sentiment in Chinese stock markets has normalised after frenzied trading gradually dissipated toward the end of the month, analysts at Morgan Stanley said in a research report on Friday.
“The US-China tension remains the largest near-term risk,” analysts led by Laura Wang said. “Local Covid-19 hotspots and adverse weather conditions could put pressure on market sentiment.”
China reported 127 new cases of Covid-19 infections on Thursday, with most of them in the western region of Xinjiang and the northeastern province of Liaoning. This was the third straight day in which the country reported more than 100 new cases, after a new cluster in Beijing was quickly brought under control over the past month.
“We continue to prefer A-shares within China equity space given its better protection against geopolitical risks and continued market reform support,” the analysts said, adding that reforms at the ChiNext board of start-ups in Shenzhen is likely to stimulate market liquidity.
Investors on Friday were taking cues from China’s July purchasing managers’ index, which pointed to a continued recovery in the economy. The official PMI for manufacturing index stood at 51.1, better than June’s reading of 50.9 and the market consensus expectation of 50.8 according to a Bloomberg poll.
The services PMI was 54.2, down from 54.4 in June but maintained in the territory above 50, which indicates an expansion in the sector.
Despite the positive readings, “a potential uptick of coronavirus cases – both onshore and offshore – may again slow the pace of re-opening, risk consumer sentiment, hurt business confidence and drive up unemployment even further, bringing potential headwinds to small and medium-sized enterprises and export-oriented companies,” analysts at China Renaissance led by Bruce Pang, head of macro and strategy research, said in a report on Friday.
Meanwhile, China’s top policymakers vowed extended support for the economy in the second half of the year.
A Politburo meeting chaired by President Xi Jinping on Thursday concluded the country’s monetary policy will become more flexible and targeted, while fiscal policy will be more proactive, as the economy still faces a “severe and complex” outlook, according to the official news agency Xinhua.
“We will ensure macro policies will be implemented and be effective,” the top decision-making body of the Communist Party said, as reported by Xinhua.
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In Hong Kong, Zhou Hei Ya, one of the largest retailers of braised food in China, bucked the downward trend to soar 12 per cent to HK$6.22. The company based in Hubei province, the original epicentre of the Covid-19 pandemic, issued a profit warning to forecast a 45 per cent profit plunge in the first half of the year from the same period last year. Investors piled in, nonetheless, after CICC raised its target price by 26 per cent to HK$6.5, saying it sees potential growth for the company from new products in the second half of the year.
Standard Chartered declined a second straight day on results that disappointed investors. On Friday, it closed down 3 per cent to HK$40.55.The lender posted a 40 per cent plunge in its second-quarter profit to US$733 million, which was better than the US$551 million predicted by analysts.
HSBC Holdings, the largest lender in Europe, also retreated 2 per cent to HK$34.95, as traders exited the firm caught in an intensifying crossfire between China and the US.
