China and Hong Kong stocks rally for second day on optimism that trade war escalation is priced in

PUBLISHED : Wednesday, 19 September, 2018, 10:20am
UPDATED : Wednesday, 19 September, 2018, 5:29pm

China and Hong Kong stocks rallied for a second day on optimism that the latest round of US tariffs on Chinese imports unveiled this week was priced in, and as property developers climbed on preferential tax policies.

The Shanghai Composite Index rose 1.1 per cent, or 30.90 points, to 2,730.85 at the close on Wednesday, extending a gain of 1.8 per cent for the previous day. The Hang Seng Index climbed 1.2 per cent, or 322.71 points, to 27,407.37 after adding 0.6 per cent a day earlier. China’s yuan also gained in both onshore and offshore markets.

Traders interpreted Washington’s announcement on Monday of officially imposing proposed tariffs on US$200 billion worth of Chinese goods as a boot that has dropped, leaving a respite for equities. Sinolink Securities said the Shanghai Composite might rebound to as high as 2,900, as October would be a vacuum period of the news on the escalation of the trade war.

“The boot of the US$200 billion tariff has dropped for now,” said Li Lifeng, a strategist at Sinolink Securities.

“We expect China and the US to start trade talks in October, and better-than-expected results may be achieved,” said Li, who recommended shares of building materials, liquor distillers and natural-gas producers.

Stocks in mainland China and Hong Kong were also boosted by Beijing pledging to step up investment in key areas of the economy to offset the adverse impact from the trade war and refraining from using heavy-handed measures to retaliate against the US.

China said on Tuesday night that it would levy tariffs, ranging from 5 to 10 per cent, on US$60 billion of US imports. The rates are a reduction from the previously proposed 20 to 25 per cent range.

We expect China and the US to start trade talks in October, and better-than-expected results may be achieved
Li Lifeng, Sinolink Securities

The CSI 300 Index of big-caps in the mainland climbed 1.3 per cent and the Hang Seng China Enterprises Index, or the H share gauge, added 1.8 per cent. The yuan rose 0.1 per cent against the US dollar in trading on the mainland and 0.2 per cent in offshore trading in Hong Kong.

“Market sentiment improved because the tariffs from both sides appear to be symbolic only,” said Kingston Lin King-ham, director of securities brokerage AMTD.

“It also remains to be seen whether trade negotiations can resume or not.”

Property developers led the gains in both the mainland and Hong Kong. The Chinese government was working on detailed plans that would allow mortgages and rents to be deducted from individuals’ taxable income, the Securities Daily said in a Wednesday report. The rules are likely to take effect in January 2019, according to early government statements.

China Vanke jumped 5.1 per cent to 24.17 yuan in Shenzhen, capping its biggest gain since March 29. Its Hong Kong-traded stock jumped 6.1 per cent to HK$27. Poly Real Estate Group added 4.7 per cent to 12.71 yuan in Shanghai and Future Land Holdings climbed 7.3 per cent to 27.12 yuan.

Sunac China Holdings advanced 4.2 per cent to HK$25.90 in Hong Kong and Country Garden Holdings rose 2 per cent to HK$11.10.

Great Wall Motor surged 12 per cent to HK$4.99 after chairman Wei Jianjun for the first time increased his stake in the company. Wei bought a total of about 25 million H shares between September 13 and 17 for about HK$110 million (US$14 million), according to a stock exchange filing. The automaker’s mainland-listed shares rose 3.1 per cent to 7.44 yuan in Shanghai.

Defensive stocks slipped as investors cashed out amid the rising risk appetite. China Mobile dropped 0.8 per cent to HK$75.75 and electricity producer Power Assets Holdings eased 0.4 per cent to HK$55.95.