Chinese Stocks Rally to Three-Month High Amid State-Support Bets

Making Sense of China's Economy
  • Authorities may want to keep gauge up before GDP data: analyst
  • Equity benchmarks in Hong Kong close at highest in five weeks

China’s benchmark stock index rose to a three-month high amid speculation state-backed institutions intervened in both the share and currency markets, and as the nation’s pension funds prepared to invest in equities.

The Shanghai Composite Index closed 1.8 percent higher, with most of its gains coming in late afternoon trading. A measure of energy companies climbed the most in four months as China Coal Energy Co. paced gains after saying it expects a return to profit. Casino shares boosted Hong Kong equities following a note from brokerage Telsey Advisory Group saying that Macau gaming revenues are likely to halt two years of declines in July.

China’s pension funds, which have about 2 trillion yuan ($300 billion) for investment, may start deploying some of their holdings in securities including equities in the second half, according to China International Capital Corp. and CIMB Securities. The Shanghai Composite, which declined in early trading, is down 14 percent for the year amid yuan depreciation concerns. The economy expanded 6.6 percent, the slowest pace since 2009, in the second quarter, according to a Bloomberg survey before data due Friday.

“It might be the national team coming in to buy up the stocks ahead of gross domestic product figures," said Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong. “They may attempt to keep the Shanghai Composite above 3,000."

Intervention Bets

Steep gains toward the close of trading have boosted speculation of state intervention in the past. China’s authorities have been known to intervene in mainland markets before key national events, including this year’s National People’s Congress and last year’s military parade celebrating the 70th anniversary of victory over Japan during World War II.

The Shanghai gauge, which closed above 3,000 for the first time since April last week, finished the day at 3,049.38. The Hang Seng Index rose 1.7 percent in Hong Kong, the highest since June 8, while the Hang Seng China Enterprises Index added 1.8 percent to end at a five-week high.

The advances track a broader rally in regional equities on optimism that policy makers will act to stem any fallout for the global economy from Britain’s vote to leave the European Union. The MSCI Asia Pacific Index climbed to levels last seen in April, after the S&P 500 Index closed at a record high following Friday data showing a rebound in the U.S. labor market.

Yuan Advances

The Chinese yuan traded in Shanghai strengthened Tuesday amid speculation China’s central bank intervened to curb market volatility. The monetary authority may have stepped in after “unusually high” trading volumes on Monday suggested rising dollar demand, said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore.

China Shenhua Energy Co. jumped 5.2 percent and Yanzhou Coal Mining Co. advanced 4.9 percent in Hong Kong, while China Coal surged 5.3 percent in Shanghai. Hong Kong and overseas investors accelerated buying of mainland shares in the afternoon through a stock link with Shanghai, accounting for the biggest net purchases since June 3.

“Expectations that the national pension fund will start buying shares” were helping blue-chip stocks, said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai.

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