China’s stocks extend gains as shares linked to Greater Bay Area surge on development plan

China’s stocks rose for a second day, with the benchmark gauge extending the biggest gain in three months, on optimism that growth in the world’s second-largest economy will gather pace. Hong Kong’s stocks dropped as HSBC Holdings reported lower-than-expected earnings.

The Shanghai Composite Index added 0.1 per cent, or 1.29 points, to 2,755.65 at the close on Tuesday. The Hang Seng Index slid 0.4 per cent, or 118.88 points, to 28,228.13.

Guangzhou Pearl River Industrial Development and Guangzhou Port led the gains among companies based in the southern province of Guangdong after Beijing unveiled a long-heralded plan to create the Greater Bay Area by linking Hong Kong and Macau with cities in Guangdong.

Hong Kong’s banking and insurance sectors among biggest winners under ‘Greater Bay Area’ blueprint, say analysts

“Investors had very low expectations about the economy at the start of the year,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “But they’ve got lots of supportive measures recently including the record amount of new loans. So the confidence is back now. The market looks a bit stretched now after the nice run-up. The rally will continue after some consolidation.”

The mainland’s equity gauge jumped 2.7 per cent on Monday after banks’ new loans surged to a record in January and off-the-balance-sheet lending reversed declines, raising expectations that economic growth will pick up on increasing financing demand.

A technical measure signalled that a short-term correction may be in store. The 14-day relative strength index of the Shanghai Composite, which measures how fast a gauge rises or falls in a certain period of time, rose to 71.6 on Tuesday, above the reading of 70 indicating stocks are being overbought and poised to fall.

A gauge tracking stocks linked to the Greater Bay Area climbed 0.9 per cent on Monday, according to data compiled by data provider Shanghai DZH. Property developer Guangzhou Pearl River surged by the 10 per cent daily limit to 5.02 yuan and Guangzhou Port also jumped by that much to 4.84 yuan. Shenzhen Yan Tian Port Holding gained 10 per cent to 6.46 yuan.

In the development plan unveiled on late Monday, the Chinese government will seek to turn the Greater Bay Area into a leading global innovation hub, boost infrastructure connectivity and strengthen Hong Kong’s role as an international centre of finance, shipping, trade and the offshore yuan business.

In Hong Kong, HSBC sank 2.3 per cent to HK$66.15 after reporting fourth-quarter profit of US$1.5 billion that trailed analysts’ estimates. Hang Seng Bank gained 0.3 per cent to HK$186.20 as the lender reported net income of HK$24.2 billion (US$3.08 billion) for 2018, beating the projection surveyed by Bloomberg by 3.6 per cent.