Chinese Stocks Rise as H-Shares Gauge Rebounds from Six-Year Low

Updated on
Making Sense of the Chinese Markets
  • Energy shares surge as government pledges supply-side reform
  • China willing to keep intervening in stock market, VP Li says

Chinese stocks rallied, spurring a rebound for the benchmark gauge in Hong Kong from a six-year low, as energy producers surged on higher oil prices and after the government signaled it will curb overcapacity in industries such as coal that have been dragging down economic growth.

The Hang Seng China Enterprises Index jumped 3.4 percent at the close, the biggest gain since October. PetroChina Co. and China Shenhua Energy Co., the largest Chinese oil and coal producers, climbed more than 7 percent. Premier Li Keqiang called for supply-side reforms in the steel and coal industries, while the Economic Information Daily reported the government will provide 100 billion yuan ($15 billion) a year to help reduce capacity in those sectors. The Shanghai Composite Index rose 1.3 percent, halting a three-week losing streak.

Chinese stocks are joining a global rebound for equities after the European Central Bank signaled it may boost stimulus and crude oil nudged $30 a barrel. There’s speculation the Chinese government will continue to prop up mainland equities after Vice President Li Yuanchao’s comments, according to IG Asia Pte. China is willing to keep intervening in the stock market to make sure a few speculators don’t benefit at the expense of regular investors, Li said in an interview at the World Economic Forum in Davos, Switzerland.

“The early rebound in Chinese markets might be due to improved global sentiments, riding on the back of oil recovery and additional ECB stimulus,” said Bernard Aw, a strategist at IG Asia in Singapore. “Moreover, China’s vice president has commented that Beijing would keep intervening in the stock markets to curb volatility, which could be interpreted that the ’National Team’ will maintain their presence, supporting stock prices.”

The Shanghai Composite has fallen 18 percent this year, making it the worst-performing global benchmark measure out of the 93 tracked by Bloomberg, while the H-shares index has slumped 16 percent. Concern about the government’s ability to manage the economy and yuan volatility have contributed to the losses, along with a steep decline in leverage. Margin debt in Shanghai dropped for a 15th day on Thursday to 578 billion yuan ($88 billion), the longest losing streak since the exchange began compiling the data in 2010.

“It’s a result of the decreasing risk appetite,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai. The Shanghai Composite may fall to 2,700 in the first quarter, he said.

The selloff is a setback for President Xi Jinping’s government, which has been intervening to support both stocks and the yuan after the worst start to a year for mainland markets in at least two decades. As policy makers in Beijing fight to prevent a vicious cycle of capital outflows and a weakening currency, the resulting financial-market volatility has heightened concern that the deepest economic slowdown since 1990 will worsen. More than $840 billion exited the country in the first 11 months of last year in an unprecedented exodus, according to a Bloomberg gauge.

Hard Landing

Billionaire investor George Soros said China’s economy is facing a hard landing, a situation that will contribute to global deflationary pressures. While China has resources to manage the situation, the slowdown there has spillover effects on the rest of the world, Soros said Thursday in an interview with Bloomberg Television’s Francine Lacqua from the World Economic Forum.

Premier Li called for structural reforms at a State Council meeting, according to a statement posted on the cabinet’s website. He urged speedier development of new economic drivers, as well as cutting overcapacity in the steel and coal industries. The government will provide the funds to help reduce capacity in those sectors for the next four to five years, the Economic Information Daily reported, citing information provider ICIS-C1 and unidentified people as saying.

In Hong Kong, PetroChina surged 7.9 percent, while Shenhua Energy jumped 10 percent. Automakers also advanced, with Great Wall Motor Co. gaining 6.8 percent. The CSI 300 Index increased 1 percent, led by energy and technology shares. China Coal Energy Co. advanced 2.7 percent.

Hong Kong’s Hang Seng Index rose 2.9 percent as the city’s dollar climbed by the most since 2011. The gauge dropped this week to levels last seen in 2012 as speculation mounted that the Hong Kong dollar’s link to the greenback would be scrapped.

— With assistance by Shidong Zhang, and Kyoungwha Kim

Before it's here, it's on the Bloomberg Terminal. LEARN MORE