China stocks rallied on the first day of the third quarter, with Shanghai’s benchmark closing at its highest level in nearly four months, as a gauge of smaller private manufacturers showed better-than-expected expansion and the central bank lowered interest rates.
The Shanghai Composite Index on Wednesday advanced 1.4 per cent to 3,025.98, which was its highest close since March 6.
The Shenzhen Composite Index climbed 1 per cent to 1,2112.96. The Nasdaq-like tech board ChiNext declined 0.8 per cent, but tumbled as much as 2 per cent after it had surged to a four-year high on Tuesday.
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The trading volume of the stock markets in Shanghai and Shenzhen reached 900 billion yuan, which was the highest level in three and a half months, according to Wind Information, as investor sentiment has picked up on a stream of economic data pointing to slow but steady economic recovery in the world’s second-largest economy.
The Hong Kong stock market was closed for a one-day holiday recognising the British handover of the city to China in 1997.
Hong Kong traders will return Thursday, with the controversial national security law tightening Beijing’s grip over the city in effect. Demonstrators who returned to the streets Wednesday to protest the law were met by riot police and pepper spray. Many protesters were arrested.
Initially, after Beijing announced its intention to impose the sweeping law, the Hang Seng Index tumbled 5.6 per cent on May 22. But since then, it has advanced 6.4 per cent. And June turned out to be the benchmark’s best month this year, with a 6 per cent gain, as traders turned their focus to global economic recovery.
Elsewhere in Asia, most major benchmarks advanced.
In China, the Caixin/Markit Purchasing Managers’ Indexes (PMI), a gauge indicating factory output of smaller private companies, was 51.2 in June, stronger than the 50.5 market expectation and its best reading since December. A reading above 50 signals expansion.
That followed Tuesday’s release of the official manufacturing purchasing managers’ index (PMI) for June, which hit 50.9, beating expectations.
“China’s string of data beats supports the notion that global economic recovery is well under way,” said Stephen Innes, chief global markets strategist at AxiCorp.
Gains in mainland China were led by duty-free operators. Wangfujing Group, which owns the Wangfujing department store chain, and Gree Real Estate surged by the daily cap of 10 per cent, while China Tourism Group Duty Free rose 8.6 per cent, after Beijing announced it will increase the annual duty-free shopping quota for visitors to Hainan province.
Wangfujing has soared 258.2 per cent this year.
The government also added new favourable tax policies on Tuesday for talented workers and companies that can help build the southern Hainan island province into a free-trade port.
Liquor stocks were also among top gainers, with a liquor index tracked by Wind Information surging 7 per cent. Kweichow Moutai, the world’s most valuable liquor stock, broke the 1,500-yuan level and reached its all-time intraday high at 1,506 yuan. But it could not hold the milestone, and narrowed its gain to 2.2 per cent to close at 1,494.27 yuan. The stock has advanced nearly 28 per cent this year.
Kweichow Moutai is one of the most heavily traded stocks on the Stock Connect. Other heavily traded stocks on the trading link include Jiangsu Hengui Medicine, which fell 1.4 per cent, and Ping An Insurance, which gained 2.9 per cent.
The People’s Bank of China said on Tuesday that it will cut re-discount and re-lending rates by 25 basis points starting from Wednesday. The central bank aims to lower financial costs for the agricultural sector and small businesses.
Meanwhile, President Xi Jinping on Tuesday also hosted a central committee meeting where he stressed the need for further economic reform. The meeting also unveiled a three-year action plan for state-owned enterprises and guidance for deepening the integration of information technologies with manufacturing as well as health care.
Two initial public offerings debuted in mainland China. Chengdu Qinchuan IoT Technology, an internet-of-things device and measurement instrument producer, debuted in the Star Board. It soared 186.4 per cent to 32.45 yuan. Capitalonline Data Service, a Beijing-based cloud computing service provider, debuted in Shenzhen, surging 43.9 per cent to 4.85 yuan.
Gains on Wall Street overnight also boosted market confidence, as major averages ended the second quarter with their biggest quarterly gains in two decades.
But tensions between the US and China are growing.
The US Federal Communications Commission on Monday designated Chinese tech giants Huawei Technologies and ZTE Corp. as national security threats. American senators also called for Washington to analyse the effect of influence of foreign countries especially China on the domestic pharmaceutical supply chain. ZTE China shares dropped 1 per cent.
Spot gold rose 0.4 per cent to US$1,788.87 per ounce, while gold futures hit US$1,803.70 per ounce. Gold, which has risen about 17 per cent this year, is trading at its highest levels in more than seven years.
Elsewhere in Asia, South Korea’s Kospi fell 0.1 per cent and the S&P/ASX200 in Australia advanced 0.6 per cent.
However, Japan’s Nikkei 225 fell 0.8 per cent on a coronavirus outbreak in the capital city of Tokyo and plunging auto sales. Tokyo confirmed 67 cases of coronavirus, which, according to NHK, was the most since a state of emergency order was lifted. Meanwhile, Japan’s new auto sales fell 23 per cent year-on-year in June, Reuters reported.
Additional reporting by Deb Price
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