China stock market

Mainland stocks climb to one-month high as PBOC fund injection lifts liquidity concerns

Shanghai Composite Index gains 1.2 per cent, or 38.19 points, to close at 3,140.32 on Wednesday, the highest level since May 2

PUBLISHED : Wednesday, 07 June, 2017, 9:09am
UPDATED : Wednesday, 07 June, 2017, 5:11pm

Mainland stocks rose to their highest in a month after the central bank injected funds into the financial system, allaying concerns about a drain in liquidity caused by financial deleveraging.

The Shanghai Composite Index gained 1.2 per cent, or 38.19 points, to 3,140.32 at the close on Wednesday, the highest level since May 2. Trading volumes on the gauge were 22 per cent higher than the five-day average. The ChiNext gauge of smaller companies advanced 1.9 per cent to 1,799.85 in Shenzhen, the biggest gain in three weeks.

The central bank is turning on its tap. It has spurred optimism that the financial deleveraging may temporarily come to an end now
Wang Zheng, Jingxi Investment Management

In Hong Kong, the Hang Seng Index failed to hold onto the 26,000 level.

The People’s Bank of China injected 498 billion yuan into the banking system through the medium-term lending facility on Tuesday, easing a liquidity squeeze that has recently driven up inter-bank lending rates and yields on 10-year government bonds.

“The central bank is turning on its tap,” said Wang Zheng, chief investment officer at Jingxi Investment Management. “It has spurred optimism that the financial deleveraging may temporarily come to an end now.”

The Shanghai Composite is rebounding from a decline of as much as 6.9 per cent over the past two months. Tighter liquidity weighed on assets from equities to bonds, as financial regulators increased scrutiny by cleaning up wealth management products and inter-bank lending activities after President Xi Jinping called for stability in the financial markets.

Mainland equities also got a boost on Wednesday after the central bank raised the fixing rate for the yuan for a sixth straight day, sending the Chinese currency to a seven-month high.

Small-capitalisation companies led gains after the China Securities Regulatory Commission slowed down the pace at which it was approving initial public offerings, which are dominated by smaller firms. The number of IPO companies was cut to four last week from seven, a second straight week of reductions.

Hangzhou Landscape Architecture Design Institute surged by the 10 per cent daily cap to 61.45 yuan and Shenzhen Minde Electronics Technology gained 6.3 per cent to 54.83 yuan.

There are small fluctuations in the market but HSI will continue to edge higher
Alex Wong Kwok-ying, Ample Capital

A gauge of consumer stocks rose 2.1 per cent on Wednesday, the best-performing industry group after small-cap technology companies. Kweichow Moutai, the nation’s biggest liquor maker, added 2.4 per cent to 459.37 yuan, a record close. Wuliangye Yibin, a smaller rival, also closed at a record 50.90 yuan after a 4.9 per cent gain.

The Hang Seng Index (HSI) dropped 0.2 per cent, or 44.33 points, to 25,952.81 while the Hang Seng China Enterprises Index was little changed at 10,609.18.

“There are small fluctuations in the market but HSI will continue to edge higher and the rise will not be turned around in the short term unless another prevailing market forecast says otherwise,” said Alex Wong Kwok-ying, asset management director of Ample Capital. “Profit-taking pressure is low.”

Man Wah Holdings tumbled 10 per cent to HK$6.03 before trading was suspended at 2.30pm, as the sofa maker became the latest short-selling target of Muddy Waters Research. The company has 48 per cent more debt than it had disclosed, Muddy Waters’ founder Carson Block said during an investment conference in Hong Kong.

A spokesman at Man Wah’s office in Huizhou, where the company operates a factory, declined to comment, saying that all its executive directors were away on business trips.

The country’s biggest homebuilder, China Evergrande, retreated 1.2 per cent from a record to HK$16.46.

Electronic components maker AAC Technologies soared 14 per cent to HK$92.55 after dismissing an allegation by a US-based short-seller of “dubious accounting practices” and overstating profits. The company provided an independent report that rates it as a “strong buy” with a target price of HK$111 at a Tuesday press conference.

New World Department Store China surged 43 per cent to HK$1.90 on plans to take the company private as the stock resumed trading after being suspended over the past two days.