China, Hong Kong end October trade on a positive note, despite month of heavy losses, and worse-than-expected mainland PMI reading

Hong Kong and China markets both ended higher on Wednesday, shrugging off China’s worse-than-expected reading for manufacturing activity for October.

The Hang Seng Index rose 1.6 per cent, or 394.16 points, to 24,979.69, while the Hang Seng China Enterprises Index added 1.4 per cent.

In the mainland, the Shanghai Composite Index gained 1.4 per cent, or 34.74 points, to 2,602.78. The CSI 300 of large caps was also up 1.4 per cent, while the ChiNext gauge of smaller caps rose 1.2 per cent.

The gains came in spite of October being a rocky month for Hong Kong and mainland markets, as slowing economic growth and the escalating trade war dampened investor sentiment.

For the month, the Hang Seng Index slumped by 10 per cent, capping a sixth straight month of declines. That was the longest streak of monthly losses since 1982. The Shanghai Composite dropped 7.8 per cent in October, the most for a single month since June.

China’s purchasing managers’ index (PMI) for October was worse than expected, as factory activity in the world’s second largest economy slowed amid the ongoing US-China trade war, according to official figures released on Wednesday morning.

The PMI, which measures sentiment in the manufacturing industry, fell to 50.2, lower than the median expectation of 50.6 in a Bloomberg survey of economists, and 50.8 in September.

October’s reading means manufacturing activity continued to expand, but at a slower rate than the previous month, and remained only just above the break-even level of 50, which separates expansion from contraction in the sector.

China’s official PMI – produced by China’s National Bureau of Statistics and the China Federation of Logistics and Purchasing (CFLP) – is a better gauge of sentiment among larger, mostly state-owned enterprises, while the Caixin PMI to be released on Thursday is a better guide for smaller, mostly private sector firms.

But Wednesday’s markets followed on from Tuesday’s climb, after China’s securities regulator said it would improve the quality of listed companies and woo long-term investors, in its latest move to talk up equities and counter concerns about the escalating trade war. The China Securities Regulatory Commission said it will encourage share buy-backs and mergers and acquisitions, boost market liquidity by scaling back intervention in trading and guide the entry of more long-term investors.

Investors have “overlooked the negative factors and rested on the positives,” said Francis Lun, chief executive officer of investment services firm Geo Securities.

Lun predicted the Hang Seng Index will probably stay flat at the level of 24,000 throughout November, unless Chinese President Xi Jinping and his US counterpart Donald Trump come to an agreement on resolving the trade dispute.

Technology stocks led the pack of gainers, following on from an overnight rally in the US. Tencent Holdings rallied 5.9 per cent to HK$267. This came in spite of Tencent-backed Yonghui Superstores, the Shanghai-listed operator of supermarkets, touching a 14-month low in early trading, as investors dump consumer stocks amid fears of weak spending.

Apple suppliers Sunny Optical Technology Group and AAC Technologies Holdings gained the most among blue chips, trimming their losses in 2018 to a minimum of 32 per cent. Sunny Optical, Hong Kong’s largest electronics company by market cap, jumped 5.8 per cent to HK$68 and AAC Tech gained 4.7 per cent to HK$59.65.

Asia’s largest oil and gas provider, PetroChina, rose 3.4 per cent to HK$5.74, after net profit in the third quarter surged to a four-year high on higher oil and gas prices. Profit attributable to shareholders jumped 350 per cent to 21 billion yuan (US$3 billion).

Fellow industry giant, Sinopec, however, dropped 2.8 per cent to HK$6.36 after posting lower third quarter earnings. Though its net profit was 18.4 billion yuan, this was down from a record high of 22.8 billion yuan in the second quarter.