China Stocks Jump to Seven-Month High on Shenzhen Link Optimism

  • Property shares surge for second day on takeover speculation
  • Shanghai turnover rises to four-month high as volumes jump 63%

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Chinese stocks climbed to a seven-month high on surging turnover as takeover speculation buoyed property developers and shares in Shenzhen rallied after a report said details of an exchange link with Hong Kong will be announced shortly.

The Shanghai Composite Index gained 2.4 percent at the close, with about 90 stocks rising for each that fell. A gauge of real estate companies capped its steepest two-day rally in almost a year after stake purchases by China Evergrande Group fueled optimism of more mergers. The ChiNext Index rose 3.3 percent after the Hong Kong Economic Journal said small-cap shares in Shenzhen will be included in the link and the start date may be announced as soon as this week. Chinese stocks in Hong Kong rose for an eighth day.

“The market is expecting the connect will be open shortly,” Linus Yip, a strategist at First Shanghai Securities Ltd. in Hong Kong. “There’s much talk about mergers and acquisitions” in the real estate industry, he said.

The China Securities Regulatory Commission is pushing ahead with preparations for the link between Hong Kong and Shenzhen, which expands on an existing connect with Shanghai, and the program will start this year when appropriate, the regulator’s spokesman Deng Ge said at a briefing in Beijing on Friday. Billionaire Hui Ka Yan’s Evergrande has boosted stakes in both China Vanke Co. and Langfang Development Co.

The aggregate quota for the Hong Kong-Shanghai link will be abolished, while only daily caps will be imposed on the Shenzhen program, the Hong Kong Economic Journal reported, citing unidentified funds briefed by exchange officials.

Gains came as China’s broadest measure of new credit rose the least in two years. Aggregate financing was 487.9 billion yuan ($73.4 billion) in July, compared with the median estimate of 1 trillion yuan in a Bloomberg survey of economists, data showed Friday after markets closed.

The credit growth data “weren’t great, but the market is expecting there will be more policies coming out to help the economy, and that’s helping the A-share market as well as Chinese companies in Hong Kong,” Yip said.

Volumes Jump

The Shanghai Composite Index rose to 3,125.20, sending the measure above its 200-day moving average for the first time in a year. Trading volumes on the gauge surged 63 percent above the 30-day average, while turnover was the highest in four months.

Even with the Shanghai Composite rising 4.1 percent since Thursday’s close, the measure ranks among the world’s worst performers this year. Shares have been buffeted as the slowest economic expansion in more than two decades weighs on corporate earnings and the memory of 2015’s $5 trillion summer rout deters new investors.

A measure of property companies jumped 5.2 percent, taking its rally from Thursday’s close to more than 10 percent. Vanke and Langfang both soared by the 10 percent limit to record highs on Monday.

The Hang Seng China Enterprises Index added 1.6 percent at the close, taking its gains over the eight-day period to 8.1 percent. The gauge’s 14-day relative strength index rose to 75.6, above the threshold of 70 some traders see as a signal that a rally is about to reverse. The Hang Seng Index increased 0.7 percent.

AAC Technologies Holdings Inc. jumped 3.8 percent to a record high after Hang Seng Indexes Co. said the company will join Hong Kong’s equity benchmark on Sept. 5. Tingyi (Cayman Islands) Holding Corp., due to be removed from the gauge, slumped 3.2 percent.

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