- Shares climb amid bets PBOC to take steps to boost economy
- Price gap with Hong Kong equities widens most in three weeks
China’s benchmark stock index closed above 3,000 for the first time in more than two months amid speculation the central bank will take steps to boost the economy.
The Shanghai Composite Index climbed 0.6 percent, with industrial and consumer-staple companies leading gains. Trading volumes were 49 percent higher than the 30-day average as the benchmark extended its advance to almost 4 percent since the turmoil ignited by Britain’s vote to leave the European Union. The Hang Seng China Enterprises Index dropped 1.8 percent, widening its discount to mainland shares.
The central bank is likely to fine-tune monetary policy in the second half with targeted reserve-requirement-ratio cuts or possibly across-the-board reductions, according to a front-page commentary in the state-run China Securities Journal. Data released in the past week showed a slowdown in manufacturing and industrial profits, while figures due next week are forecast to indicate a third monthly drop in exports.
“There has been some speculation of imminent interest-rate cuts,” said Pauline Dan, Hong Kong-based head of Greater China equities at Pictet Asset Management Ltd. “If that’s what people are expecting, it can very well provide support for the market. The overall position of mutual funds and investors is very low on equity."
The People’s Bank of China said in a statement on Monday it’s closely monitoring domestic and external risks to the economy and that the complexity of the situation shouldn’t be underestimated, citing market volatility spurred by the U.K.’s vote. The statement shows the central bank remains open to cutting the benchmark interest rate or the reserve ratio for big banks to counter headwinds, Zhao Yang, chief China economist at Nomura Holdings Inc., wrote in a report.
The Hang Seng China Enterprises Index dropped the most in a week, with Sinopharm Group Co. and Huaneng Power International Inc. among the biggest decliners. Industrial and Commercial Bank of China Ltd. slid 1.9 percent, the biggest drag on the gauge. The Shenzhen Composite Index rose as well, closing 0.2 percent higher at 2,006.38.
Hong Kong Moves
The Hang Seng Index, which on Monday erased losses accumulated after the Brexit vote, retreated 1.5 percent. PetroChina Co. dropped 2.2 percent in Hong Kong, while China Petroleum and Chemical Corp. was down 1.8 percent. West Texas Intermediate for August delivery fell 2.7 percent on the New York Mercantile Exchange from Friday’s close. There was no settlement Monday because of a holiday in the U.S.
The Hang Seng China AH Premium index, which measures the price gap between dual-listed shares in China and Hong Kong, jumped the most since June 10, widening the premium of mainland-traded shares over their Hong Kong counterparts to 34 percent.
Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong, said traders in Shanghai are showing more optimism than their counterparts across the border.
"Shanghai is different," he said. "People may have different expectations on the Chinese economy and people think that more stimulus measures are likely to come from the central government. Investors in Hong Kong tend to be more realistic."
The Wall Street Journal reported that China’s securities regulator plans to trim the list of listings applicants by a third. The China Securities Regulatory Commission is looking to cut the list down from nearly 900, the WSJ said in a post on the Chinese social media platform Weibo, citing people it did not identify. Brokerages were reexamining applicants’ financial records and information disclosures, it reported.
The Shanghai Composite will fall to 2,850 by the end of September, sliding 2.7 percent in a third consecutive quarterly decline, according to the median forecast in a Bloomberg poll of six strategists and fund managers. A deepening economic slowdown, the possibility of a yuan devaluation and selling by insiders were seen weighing on mainland equities, the survey showed.
The Shanghai gauge is still down 15 percent this year, one of the steepest declines among 94 global indexes tracked by Bloomberg, while turnover has dropped more than 70 percent since last year’s peak.
China Vanke Co. tumbled by the 10 percent daily limit in Shenzhen for a second day following a six-month trading suspension. The property developer’s board last week declined to hold an extraordinary general meeting called by its largest shareholder to remove almost all directors. Vanke’s shares rose 1.2 percent in Hong Kong, the second day the dual-listed shares headed in opposite directions.