China stocks post biggest gains in over three years amid hope deleveraging will be slowed if US tariffs bite hard

PUBLISHED : Monday, 09 July, 2018, 1:17pm
UPDATED : Monday, 09 July, 2018, 8:13pm

China stocks rose the most in three years on Monday, boosted by gains in Chinese financials amid expectations Beijing would slow down its deleveraging campaign if trade tensions with the United States affect the economy.

The Shanghai Composite Index climbed by 2.5 per cent, or 67.88 points, to 2,815.11, while the CSI 300 Index, which tracks large caps listed in Shanghai and Shenzhen, rose by 2.8 per cent, or 94.06 points, to 3,459.18. The increases recorded by both indexes were their biggest since May 2016.

In Hong Kong, the Hang Seng Index rose by 1.3 per cent, or 372.88 points, to 28,688.50, while the Hang Seng China Enterprises Index climbed by 1.4 per cent, or 145.73 points, to 10,768.35.

“The stock market rebound came from a very sharp previous drop, and the US not hitting back at China with even bigger tariffs over the weekend,” said Linus Yip, chief strategist for First Shanghai Securities. “The key resistance level for the [Hang Seng] benchmark index will be in a range of between 29,000 and 29,500.”

On Monday, signs pointed to the US taking a softer stance towards China, with Washington taking a break from further escalating its trade war with Beijing after both countries fired their first salvoes last week, analysts said.

The office of the US Trade Representative announced an exclusion process for Chinese products subject to Section 301 tariffs, seeking to lessen the blow for US companies. And judging by China’s retaliatory tariffs on a range of US agricultural goods so far, the mainland seemed to be avoiding an escalation in trade tensions too, said analysts.

In Hong Kong, Ping An Insurance advanced by 1.8 per cent to HK$70.95, China Construction Bank rose by 2 per cent to HK$6.94 and the Industrial and Commercial Bank of China gained by 1.5 per cent to HK$5.61.

And while smartphone maker Xiaomi, the first company with a dual-class share structure to list in Hong Kong, closed 1.2 per cent below its listing price, at HK$16.80, on its trading debut, technology related companies fared well. Internet giant Tencent Holdings rose by 2.4 per cent to HK$396, Sunny Optical Technology (Group) rose by 2.2 per cent to HK$145.1 and AAC Technologies Holdings was 1.1 per cent higher at HK$107.10.

Analysts widely expect the US to impose tariffs on US$50 billion worth of imports from China; and in a bearish scenario, there is a risk the duties could expand to hit a further US$200 billion worth of Chinese goods.

The key resistance level for the benchmark index will be in a range of between 29,000 and 29,500
Linus Yip, First Shanghai Securities

As international trade conflicts flare and cause significant stress to the Chinese and global economy, domestic policy easing is likely to step up and offset the pain, according to Helen Qiao, China and Asia economist at Bank of America Merrill Lynch.

A set of Chinese growth data to be released this week is expected to be a critical test for the local markets.

Elsewhere, the Shenzhen Composite Index rose by 2.5 per cent, or 38.56 points, to 1,574.54, while the Nasdaq-style ChiNext rose by 2.5 per cent, or 38.56 points, to 1,574.54.

Other Asian markets also rose on Monday. The Nikkei 225 in Tokyo gained by 1.1 per cent, or 264.04 points, to 22,052.18. South Korea’s Kospi was up by 0.6 per cent and Australia’s All Ordinaries Index edged up 0.2 per cent.