China stocks close lower despite positive industrial profits data

PUBLISHED : Tuesday, 27 December, 2016, 10:21am
UPDATED : Tuesday, 27 December, 2016, 10:23pm

Mainland China stocks inched lower on Tuesday amid light trading and tighter market liquidity despite official government data showing solid profit growth in the nation’s industrial sector in November.

The Shanghai Composite Index dipped 0.25 per cent to 3,114.66 while the CSI 300 Index, which tracks large companies in Shanghai or Shenzhen, closed 0.18 per cent lower at 3,316.39.

The Shenzhen Component Index lost 0.03 per cent to 10,230.57 and the Nasdaq-like ChiNext was down 0.27 per cent to 1,968.62. The Hong Kong stock market is closed for Christmas holidays and will reopen on Wednesday.

Trading volume in Shanghai and Shenzhen declined to nearly three-month lows on Tuesday at a combined 175.69 billion yuan. “The low turnover reflects the fact that investors are cautious in trading as the Chinese year-end holiday approaches,” Qian Qimin, an analyst from SWS Research, wrote in a new report. “It is [unlikely] there will be major stimulus news driving the stock market ahead of Chinese new year. Investors are taking a wait-and-see attitude now.”

Stocks in the energy, transportation and telecommunication sectors were among the biggest losers on Tuesday.

China Unicom slumped 3.33 per cent to 7.55 yuan in Shanghai, AVIC Aircraft Co dropped 2.0 per cent to 21.12 yuan in Shenzhen, while China Eastern Airlines fell 1.87 percent. China Petroleum & Chemicals shed 1.94 percent.

“The lack of liquidity also dampened market performance. Currently investors may focus on specific themes such as SOE [state-owned enterprise] reform and public private partnership (PPP), as the benchmarks continue to move up and down within a narrow range,” China Development Bank Securities analyst Sun Zheng wrote in a note.

China wants to encourage PPP projects to raise funds through asset-backed securitisation (ABS), the China Securities Regulatory Commission and China’s National Development and Reform Commission said in a joint statement on Monday. The new policy gives China’s infrastructure projects a new way of financing.

Shanghai-listed Longjian Road & Bridge Co jumped to 7.13 yuan, up 10.03 per cent to its daily limit. Long Yuan Construction Group Co shares surged 9.96 per cent to 11.37 yuan, also reaching the daily limit.

The low turnover reflects the fact that investors are cautious in trading as the Chinese year-end holiday approaches
Qian Qimin, SWS Research analyst

Tunnel and bridge designer JSTI Group rose 5.53 per cent to 21.36 yuan in Shenzhen, with Yunnan Yuntou Ecology and Environment Technology rising 3.19 per cent to 23.60 yuan.

Property developer China Vanke’s A shares gave up some of their initial gains but still ended up 3.37 per cent at 21.42 yuan. Commercial real estate company Shanghai Lujiazui Finance & Trade Zone Development gained 1.52 per cent to 22.73 yuan.

China’s industrial firms saw profits in November rise 14.5 per cent year on year to 774.57 billion yuan, the National Bureau of Statistics announced on Tuesday morning. That compares to a 9.8 per cent year on year growth in October.

In the first 11 months of this year, industrial profits increased 9.4 per cent thanks to earnings growth in high-end manufacturing.

Market liquidity remained restricted after the People’s Bank of China, through a series of open market operations, withdrew around 150 billion yuan of capital on Tuesday. The central bank has been tightening market liquidity for three days in a row.

The bond market was lower. The benchmark 10-year treasury futures for March delivery fell 0.21 per cent, while the five-year treasury futures for March delivery dropped 0.48 per cent.

The benchmark 10-year government bond yield rose to 3.165 per cent while the five-year government bond yield dropped to 2.94 per cent . Bond prices move inversely to yield.

In the currency market, the onshore yuan in Shanghai was 0.02 per cent or 17 basis points weaker to trade at 6.9497 per dollar.

The Chinese central bank set the yuan reference rate at 6.9462 against the US dollar, only 3 basis points weaker than Monday after the onshore yuan closed Monday evening trading at 6.9487 per dollar amid low trading volume.

The onshore yuan has been hovering around 6.95 per dollar for more than a week as the US dollar index retreated after climbing to 103. Market watchers see 7 as a critical psychological threshold for the onshore yuan.

Offshore yuan traded in Hong Kong was 0.08 per cent weaker or 58 basis points at 6.9561.