Chinese Stocks Rise in Thin Turnover as Technology Shares Rally

Stephen Roach: China Is Not Crash Landing
  • Aviation shares rally after China agrees to buy Boeing planes
  • Shanghai Composite heads for worst quarter since March 2008

China’s benchmark stock index rose for the fourth time in five days amid speculation President Xi Jinping’s state visit to the U.S. will help technology and industrial companies boost exports to offset a slowing economy.

The Shanghai Composite Index gained 0.9 percent to 3,142.69 at the close. Eight stocks climbed for every one that fell as trading volumes slumped 42 percent below the 30-day average before the start of a week-long holiday from next week. Avic Aviation Engine Corp. surged 5.8 percent after Boeing Co. unveiled its largest industrial investment in China. The Hang Seng China Enterprises Index slid 1.1 percent in Hong Kong, sending the mainland premium against so-called H shares to the highest level in two weeks.

A boost to exports would provide a cushion for an economy weighed by overcapacity and deflation that is putting China’s 2015 growth target of 7 percent at risk. Preliminary data on Wednesday showed a factory gauge falling to the lowest level since the depths of the global financial crisis, while economists surveyed by Bloomberg expect the government will further cut its growth forecast next year.

“Technology is seen as an area with massive collaboration potential,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “Chinese companies are very keen on entering the U.S. market and the economic environment seems favorable for that expansion. The low trading volumes are more related to sentiment and fear of unexpected swings in the market than any other fundamental factors.”

Aviation Stocks

The CSI 300 Index advanced 0.7 percent. The Hang Seng Index retreated 1 percent. The Shanghai gauge has fallen 2 percent this month, extending losses this quarter to 27 percent for the worst three-month period since March 2008.

Gauges of technology and industrial shares in the CSI 300 rose at least 1.1 percent for the biggest gains among the 10 groups. Leshi Internet Information & Technology Corp., the biggest mainland-listed Internet video provider, jumped 8.1 percent. China First Heavy Industries climbed 4 percent.

Boeing landed $38 billion worth of jet orders and commitments from Chinese carriers and lessors as Xi visited the U.S. company’s main factory. Wednesday’s announcements, which came during his first state visit to the U.S, underscored the intertwined interests of the planemaker and an aviation market on track to soon become the world’s biggest.

Growth Target

The Shanghai index has tumbled 39 percent from its June high as leveraged investors fled the stock market amid concerns valuations weren’t justified as the economy weakens. Data on Wednesday showed the Caixin Media and Markit Economics’ manufacturing Purchasing Managers’ Index falling to 47 in September, the lowest level since the depths of the global financial crisis.

China will cut its 2016 growth target amid excess capacity, sluggish investment and weaker manufacturing, economists said. Government leaders will announce a growth objective between 6.5 percent to 7 percent, according to eight of 15 economists in a Bloomberg News survey conducted Sept. 17-22. Four said they expect a 6.5 percent goal.

Margin traders reduced holdings of shares purchased with borrowed money on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange dropping 0.3 percent to 588.2 billion yuan ($92.1 billion).

Further losses by Chinese stocks are limited after leveraged traders cut $218 billion of positions, according to HSBC Holdings Plc. The outstanding balance of margin loans on the Shanghai and Shenzhen bourses has tumbled by 60 percent to $147 billion since the June peak.

“We’ve seen the worst" for mainland stocks, said Steven Sun, Hong Kong-based head of China equity strategy at HSBC, who has a neutral position on yuan denominated shares. “The whole deleveraging process is largely over."

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