China stocks complete best week in two months
SHANGHAI, Aug 14 — China’s benchmark stock index capped its biggest weekly gain in two months, led by commodity companies, amid speculation that the weaker yuan will help to shore up the world’s second-biggest economy.
The Shanghai Composite Index rose 0.3 per cent to 3,965.34 at the close, taking this week’s advance to 5.9 per cent. Coal producer China Shenhua Energy Co led a rally for energy companies with a 15 per cent jump. The yuan slid 3 per cent this week after Tuesday’s surprise devaluation and was little changed today. The Hang Seng China Enterprises Index added 0.4 per cent, paring this week’s loss to 1.7 per cent.
While yuan devaluation roiled markets around the world this week on concern a weaker currency will trigger competitive devaluations and spur deflation, depreciation has since slowed after China signaled support. Data this week showed exports tumbled and industrial production grew slower than expected.
“The prevailing local view seems to be that the cut was reasonable considering the slowdown in the economy,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co in Shanghai. “There is a perception that the authorities will introduce further measures to support the economy.”
The Shanghai gauge rose for five out of the past six weeks after the government introduced a flood of measures to stabilise mainland equities following an almost 4 trillion yuan (RM2.5 trillion) rout. The moves haven’t convinced foreign investors to buy shares of Chinese shares in Hong Kong, where the H-shares measure extended this quarter’s loss to 15 per cent, the worst performer among global benchmark gauges.
Margin rebound
The CSI 300 Index slipped 0.1 per cent, while the Hang Seng Index retreated 0.2 per cent. Trading volumes in Shanghai were 10 per cent below the 30-day average.
Gauge of energy and material companies in the CSI 300 surged at least 6.4 per cent this week. Sinopec Shanghai Petrochemical Co jumped 7.7 per cent today, extending a five-day gain to 22 per cent, after the Economic Information Daily reported that the government has drafted a five-year plan on oil and chemical industry development. Aluminum Corp of China Ltd surged 12 per cent this week.
The Shanghai Composite has risen 23 per cent this year, spurred by the unprecedented measures to shore up markets including banning stake disposals by major shareholders, suspending initial public offerings and compelling state-run institutions to purchase equities.
Margin traders increased holdings of shares purchased with borrowed money for a fifth day yesterday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 885.13 billion yuan (RM564.4 billion).
Airlines rebound
In Hong Kong, airlines rose after plunging earlier in the week on concern a weaker yuan will boost the costs of servicing their dollar-based debt. China Southern Airlines Co climbed 3.5 per cent, trimming this week’s loss to 17 per cent. Every 1 per cent drop in the yuan cuts 767 million yuan from annual profit, according to the carrier’s analysis in its 2014 financial report. Air China Ltd rose 3.3 per cent, paring the loss for the week to 14 per cent.
China has enough firepower to control its currency market and the worst of the yuan selloff that started Tuesday is probably over, Nomura Holdings Plc. strategists Jens Nordvig and David Fritz, wrote in a note.
The nation’s foreign reserves remain the largest in the world and enough to cover two years of imports even after shrinking to US$3.7 trillion (RM15 trillion) from a peak of US$4 trillion, Nomura said. At 10 per cent of gross domestic product, foreign-currency debt is less than a quarter of the levels in Malaysia and Thailand as they headed into the financial crisis in 1997. — Bloomberg
