China Stocks Rise to Two-Week High as Yuan Weakens for 10th Day

  • Property developers, consumer shares lead gains in Shanghai
  • Funds flow back into market after IPO lockup period ends

China’s stocks rose to a two-week high as funds flowed back to the equities market after a recent spate of initial public offerings, while the yuan weakened for a record 10th day, bolstering the outlook for exports. Property developers and consumer-discretionary companies led gains.

The Shanghai Composite Index climbed 1.8 percent to 3,579.99 at the close. Poly Real Estate Group Co. jumped by the daily limit before Friday’s data on home prices, while household-appliances maker Midea Group Ltd. advanced to a one-month high. The Chinese currency capped its longest losing streak since at least 2007. The Hang Seng China Enterprises Index rose 1.3 percent for its steepest two-day advance since October after the Federal Reserve signaled a gradual pace for future interest-rate increases.

About 2.7 trillion yuan ($420 billion) worth of funds has been released back to the market after Monday’s nine IPOs, according to the Securities Times. The Fed’s decision to increase interest rates for the first time in almost a decade signals its confidence in the strength of the U.S. economy and bodes well for Chinese exports, according to Shenwan Hongyuan Group Co.

“A weaker local currency is good to boost industries that count heavily on exports,” said Dai Ming, a fund manager keeping the holdings unchanged at Hengsheng Asset Management Co. in Shanghai. “The rate increase has removed a big uncertainty from the market and reflects official confidence in the economy.”

The CSI 300 Index gained 1.9 percent. Hong Kong’s Hang Seng Index advanced 0.8 percent as gains for banks overshadowed losses for oil companies.

The Shanghai property index jumped 4.6 percent, the most among industry groups. Poly Real Estate and China Vanke Co., the largest-listed Chinese developers, surged 10 percent in mainland trading.

Top researchers at China’s central bank said on Wednesday property investment may recover next year, supported by rebounding land and home sales, while the Chinese Academy of Social Sciences said on the same day property prices will become a “growth stabilizer” as real estate investment rebounds. The Communist Party’s Politburo vowed this week to stabilize the property market.

Friday’s new-home price data for November will provide further clues on whether the government needs to do more to support the property market. The nation’s home-price recovery slowed in October, as a supply glut in less-prosperous cities challenges the authorities’ efforts to revive the residential market with interest-rate cuts and easing of mortgage restrictions.

Yuan Slumps

The yuan slipped 0.16 percent to 6.4837 per dollar in Shanghai. The People’s Bank of China may continue its effort to stabilize the yuan against a basket of currencies and seek gradual depreciation against dollar after the Fed’s move, Citic Securities Co. analysts wrote in a note. While recent data show the Chinese economy is stabilizing, trade is still a reason for concern after exports fell for a fifth month in November amid tepid global demand.

In a move that was widely telegraphed, the Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. The U.S. rate increase solidifies the Fed’s divergence from other major central banks, with policy makers in China still emphasizing measures to support economic growth.

China and India may continue accommodative or stable monetary policies next year, supporting emerging markets as they face the possibility of more Fed rate hikes, said David Gaud, senior portfolio manager at Edmond de Rothschild Asset Management in Hong Kong.

Fed Move

“The Fed decision to increase rates moderately was well received by the U.S. stock market and that’s going to give some support to stocks in Asia, including China as it indicates that the Fed has confidence in the recovery of the U.S. economy and that is a very positive development for the Chinese export sector,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group in Shanghai.

Household-appliance exporters paced gains for consumer-discretionary companies. Midea and Gree Electric Appliances Inc. advanced at least 1.3 percent.

In Hong Kong, the H-shares gauged extended gains over the past two days to 3.5 percent. Industrial & Commercial Bank of China Ltd. jumped 2 percent. China Railway Group Ltd. surged 3.8 percent. The city’s monetary authority raised its base rate for the first time in nine years, following the Fed’s lead overnight, and flagged the risk of rising capital outflows from the city. 

Mark Mobius, chairman of the emerging markets group at Franklin Templeton, said in an interview with Bloomberg Television that China’s stock market is unlikely to see “dramatic” moves in 2016. The Shanghai index has advanced 8.7 percent this year through Wednesday’s close after soaring as much as 60 percent then plunging from the peak in June.

— With assistance by Shidong Zhang

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