- Share link speculation spurs gains in China, HK, analysts say
- No reports of bad trades to account for H-shares’ sudden dive
Shenzhen and Hong Kong stocks climbed amid speculation the start date of an exchange trading link between the two cities will be announced this week.
The Shenzhen Composite Index jumped 1.7 percent at the close, led by technology companies. The Hang Seng Index advanced after falling for each of the past three weeks. China’s state leader Zhang Dejiang will visit Hong Kong from Tuesday. Hong Kong’s exchange operator says it didn’t receive any reports of erroneous trades to account for the sudden plunge in a gauge of Chinese shares in Hong Kong that wiped out virtually all of the day’s gains.
The Shenzhen link will expand an existing program between Shanghai and Hong Kong and may enable mainland investors to access more of the city’s stocks, as well as giving overseas traders access to many of the nation’s technology and high-growth shares. Zhang, head of the nation’s legislature, is scheduled to visit the former British colony through May 19 to attend the Belt and Road Summit. The city’s Chief Executive Leung Chun-Ying said last week he hoped China would announce the start of the delayed link as soon as possible.
“Investors hope for favorable measures to be announced" during Zhang’s visit, including progress on the Shenzhen link, said Ronald Wan, chief executive at Partners Capital International in Hong Kong. "Hong Kong stocks are rebounding from oversold levels.”
The Shenzhen Composite halted a six-day slide, while the Shanghai Composite Index gained 0.8 percent. The Hang Seng index’s relative-strength index fell to as low as 32 on Friday, near the 30 level signifying oversold conditions.
A gauge of technology companies in the CSI 300 Index surged 1.6 percent for the steepest advance among 10 industry groups. Shenzhen O-film Tech Co. soared 7.4 percent. Searainbow Holding Corp., which also trades in the southern Chinese city, added 5.5 percent.
Zhang won’t announce the approval of the Shenzhen-Hong Kong stock link on behalf of the State Council, the Hong Kong Economic Times reported May 10, citing an interview with Leung.
In Hong Kong, Tencent Holdings Ltd., Asia’s biggest internet company, surged 3.1 percent for the steepest advance in two months. Brokerages also rallied, with Citic Securities gaining 3.4 percent after plunging 19 percent since April 13. GF Securities Co. and Huatai Securities Co. increased more than 2 percent.
The Hang Seng China index swung from an advance of 1 percent to a loss of 1.5 percent in about two minutes, before rebounding to close 0.1 percent higher. The same shares in Shanghai didn’t replicate the move.
“Everyone is trying to figure it out," said Jackson Wong, associate director at Huarong International Securities Ltd. in Hong Kong. “We have been trading on low volume without any major news, so there may have been something that triggered some bigger funds to sell a certain position or using futures to hedge and that triggered the domino effect for that moment. But that’s only my speculation."
Hong Kong Exchanges & Clearing Ltd., Asia’s biggest exchange operator, is closely monitoring market activities, spokeswoman Lorraine Chan said in an e-mailed response to questions.
Lenders led declines in the H-shares index, with China Construction Bank Corp. sliding 0.9 percent and China Merchants Bank Co. declining for a third day. The People’s Bank of China has started an investigation into the accuracy of commercial banks’ data on non-performing loans, Reuters reported Monday, citing two unidentified people with direct knowledge who saw a central bank notice on the issue.
Data released late Friday showed new credit in April undershot all 26 predictions in an analyst survey after surging in March. Industrial production, retail sales and investment all trailed estimates, a report released Saturday showed. While the data show a deepening slowdown, the People’s Bank of China was quick to reassure that monetary policy would continue to support the economy.
“The market had already some expectations about the poor economic data through the sell-off last week,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co.
Bloomberg’s monthly gross domestic product tracker shows China’s growth slowed to 6.88 percent in April, from 7.11 percent in March. Industrial production rose 6 percent from a year earlier versus forecasts of 6.5 percent, while a 10.1 percent increase in retail sales missed estimates of 10.6 percent. Fixed asset investment grew 10.5 percent, versus the 11 percent prediction.
Investor interest in China’s stocks has waned as the benchmark gauge extended the world’s worst performance among global peers. Bullish bets have fallen to the lowest level in two months, with the outstanding balance of margin debt on the nation’s two exchanges falling to 838 billion yuan ($128 billion), down from a peak of 2.27 trillion yuan in June. Turnover on the Shanghai bourse has fallen to the lowest for a full day’s trading since October 2014.
The offshore yuan advanced for the first time in three days, rising 0.16 percent to 6.5458 a dollar as of 5:01 p.m. in Hong Kong. The onshore exchange rate in Shanghai, which is limited to moves of 2 percent on either side of a central bank fixing, climbed 0.12 percent, according to China Foreign Exchange Trade System prices.
“The data suggest that China’s economy is still going downhill, but this doesn’t mean the government will use massive stimulus because that was what the ’authoritative person’ argued against,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. “Yuan bears might be rebuilding bearish bets, but speculators won’t likely be as aggressive as they were in January because they are aware the PBOC will intervene if the yuan slides quickly.”
The world’s second-largest debt market showed signs of strain as well, with the yield on 10-year sovereign bonds rising three basis points to 2.94 percent, as some investors saw distortions in April’s reduced credit growth.
— With assistance by Shidong Zhang, and Fox Hu