China’s H Shares Climb to Five-Week High as Li Talks Up Economy

  • Monthly exports decline in dollar terms amid weak demand
  • Some defense-related stocks gain after South China Sea verdict

Chinese stocks traded in Hong Kong climbed to a five-week high as policy makers talked up the nation’s economic outlook and Asian markets rallied amid stimulus bets.

The Hang Seng China Enterprises Index rose 0.6 percent, with financial and energy companies in the lead. China Petroleum & Chemical Corp. climbed to the highest level since October following an advance in oil prices. Bestway Marine & Energy Technology Co., which supplies equipment to China’s navy, gained in mainland trading after an international tribunal rejected China’s claim over much of the South China Sea.

Chinese equities have risen for three straight days amid speculation the nation’s leaders are taking steps to support investor sentiment, with Premier Li Keqiang cited as saying Monday the nation maintained stable growth in the second quarter and that consumer prices are generally stable. The country’s pension funds, which have about 2 trillion yuan ($300 billion) for investment, are preparing to deploy some of their holdings in securities including equities in the second half.

“State leaders have expressed confidence in the second quarter’s economic data, boosting market sentiment,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai. “The market will likely climb slowly in the short term as liquidity remains sufficient.”

The Hang Seng China, or H-share gauge, closed at 8,909.06 in Hong Kong, while the Hang Seng Index gained 0.5 percent. The Shanghai Composite Index closed 0.4 percent higher, taking its advance since Britain’s referendum to exit the European Union to 5.8 percent. The H share index climbed 1.4 percent during the same period.

Slowing Exports

Data released Wednesday showed exports in U.S. dollar terms fell 4.8 percent from a year earlier in June, as soft demand at home and abroad continues to weigh on the world’s largest trading nation. Figures set to be released Friday are forecast to show that the nation’s economy expanded 6.6 percent in the three months to June 30, the slowest pace since 2009, according to a Bloomberg survey.

Local stocks received a boost also from a regional rally, with global markets regaining the almost $4 trillion in value that was lost in the days following Britain’s June 23 Brexit vote. Economists expect the Bank of England to ease policy this week, while Japanese Prime Minister Shinzo Abe said he would order up more fiscal stimulus. Traders are pricing in less than 34 percent odds of the Federal Reserve raising interest rates this year, even after last week’s better-than-forecast U.S. payrolls data.

Wide Gains

China Petroleum, also known as Sinopec, climbed 1.9 percent in Hong Kong and China Oilfield Services Ltd. gained 1.6 percent after U.S. crude futures jumped 4.6 percent on Tuesday. Oil prices fell on Wednesday after U.S. industry data showed the nation’s crude stockpiles increased, adding to concerns about oversupply.

China Construction Bank Corp. and China Citic Bank Corp., whose H shares offer a dividend yield of at least 5 percent, added 1.3 percent. Both stocks are valued at less than 5.1 times their reported earnings.

“Large caps with low valuations and high dividends are getting popular, as investors seek to deploy their capital amid ample liquidity,” said Hengsheng’s Dai.

Defense Stocks

Bestway Marine climbed 2.4 percent, the most in more than a week, while Avic Aero-Engine Controls Co. rose 1.2 percent. China Shipbuilding Industry Co., which also builds warships, advanced 0.4 percent after the government said new industry orders climbed nearly 45 percent in the first half of 2016.

An international tribunal on Tuesday rejected China’s claim over much of the South China Sea, in a rebuff to years of Chinese activity in the waterway, which hosts $5 trillion of trade a year. China boycotted the process and dismissed the ruling. The outcome may empower other claimant states and undercut President Xi Jinping’s efforts to present China as a responsible player on the world stage.

China may increase expenditure on research-and-development and procurement of weapons in an attempt to modernize the People’s Liberation Army, UBS Group AG analysts led by Bonan Li and Robin Xu wrote in a note.

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