Chinese Stocks Climb in Hong Kong as Xi Vows Reforms, Oil Gains

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China Potential Enormous But With Challenges, Says Parry
  • Government reforms helping boost sentiment, analyst says
  • Slowing economy, mounting debt cause for worry: BlackRock

Chinese stocks traded in Hong Kong rose the most in a month, with commodity producers gaining as oil prices climbed and President Xi Jinping vowed to press ahead with plans to cut capacity at state-owned enterprises.

The Hang Seng China Enterprises Index advanced 1.4 percent as China Oilfield Services Ltd. and PetroChina Co. paced gains. Oil climbed to a seven-month high before U.S. government data forecast to show crude stockpiles dropped for a second week. The Shanghai Composite Index closed lower after swinging between gains and losses, with department store operator Xinjiang Youhao (Group) Co. leading losses.

China’s reform drive aims to improve supply quality and overhaul areas including pricing, taxation, finance and social security, the Xinhua News Agency cited President Xi as saying at a government meeting. His comments come amid record crude steel output in April, with the industry boosted by easier credit and efforts to shore up economic growth. The nation should abandon the idea of easing money conditions to accelerate economic growth, the state-run People’s Daily daily quoted an “authoritative” person as saying last week.

“Resource stocks are the play of the market as rising oil prices and decreasing supply triggered by government’s reforms have boost buying sentiment,” said Wu Kan, a fund manager at JK Life Insurance in Shanghai. “The broader market has no catalyst for either moving up or down in the short term. It will be stuck in a range-bound pattern.” Wu has recently been reducing his stock holdings to about 30 percent of asset allocations.

Watch next: Are China's Debt Woes Enough to Put Investors Off?

The Hang Seng China Enterprises closed at 8,425.78 in Hong Kong, extending a two-day advance to 1.5 percent. The Shanghai composite closed 0.3 percent lower at 2,843.68, while the Hang Seng Index climbed 1.2 percent. Yunnan Copper Co. rose 0.1 percent in Shenzhen, while Shaanxi Coal Industry Co. climbed 2.7 percent in Shanghai.

Gauges of consumer-staples and industrial stocks, the best performers over the past four months, fell in mainland trading. Yanjing Brewery Co. dropped 2.2 percent and dairy maker Inner Mongolia Yili Industrial Group Co. retreated 0.8 percent. Juneyao Airlines Co. and Spring Airlines Co. slid at least 2.5 percent. Xinjiang Youhao tumbled 9.4 percent, the biggest drop on the Shanghai Composite.

The reason for the decline in Shanghai was that the economy is weak and “there’s no chance of an immediate pick-up,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “Consumer stocks are facing some profit-taking pressure as the first reaction by investors to deal with best-performing stocks is to sell and lock profits,” she added.

Slowing Economy

Data released over the weekend indicate a pick-up in the economy may be short-lived as growth in industrial production, fixed-asset investment and retails sales all slowed in April. The nation should abandon the idea of easing money conditions to accelerate economic growth, the state-run People’s Daily cited an “authoritative” person as saying last week. BlackRock Inc., the world’s largest money manager with $4.7 trillion of client assets, flagged China’s mounting debt and slow growth as areas of concern.

The Shanghai and Shenzhen stock exchanges will publish new rules on trading halts as early as next week, the China Securities Journal reported, a move that would raise the odds of the country’s stocks being included in the MSCI Indexes. The rules are aimed at curbing arbitrary trading halts by companies listed in China and limiting the trading-halt period, the report said on Tuesday, citing a Shanghai Stock Exchange official it didn’t name. Some public companies abuse the current system to announce merger and acquisition plans to push up stock prices and then say the deals fail, the report said.

— With assistance by Shidong Zhang

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