Sub­dued in­fla­tion data in Nov spark stock rally

More pol­icy mea­sures to spur eco­nomic growth on cards, in­clud­ing cut in re­serve ra­tio, say sources

China Daily (Canada) - - BUSINESS - By XIE YU in Hong Kong xieyu@chi­nadaily.com.cn

Main­land share prices re­cov­ered some lost ground on Wed­nes­day as low in­fla­tion data helped bol­ster mar­ket sen­ti­ment and re­coup from Tues­day’s losses, said cap­i­tal mar­ket sources.

In­vestor con­fi­dence resur­faced on Wed­nes­day after theN­ational Bureau of Statis­tics said in­fla­tion re­mained at lower lev­els in­China dur­ing Novem­ber, and stoked hopes of fur­ther pol­icy eas­ing by the gov­ern­ment to spur growth. Though the over­all con­fi­dence level has im­proved, op­por­tu­ni­ties for profit tak­ing are still limited due to the high vo­latil­ity, the sources said.

The Shang­hai Com­pos­ite In­dex climbed 2.9 per­cent to 2,940 points on Wed­nes­day, after plung­ing 5.4 per­cent on Tues­day. The In­dus­trial and Com­mer­cial Bank of China and China Con­struc­tion Bank, the na­tion’s two big­gest lenders, rose by 2.3 per­cent and 2.17 per­cent, re­spec­tively. En­vi­ron­men­tal pro­tec­tion en­ter­prises, pub­lish­ing and me­dia com­pa­nies, con­struc­tion firms and en­ergy providers also led the rally.

Trad­ing vol­umes in the Shang­hai bourse amounted to 534.9 bil­lion yuan ($86.9 bil­lion), 46 per­cent above the 30-day av­er­age as 10-day vo­latil­ity reached the high­est lev­els since Septem­ber 2009, ac­cord­ing to Bloomberg data.

Hong Hao, chief strate­gist with BO­COM In­ter­na­tional Hold­ings Co in Hong Kong, said he be­lieves that there is still enough room for growth in the Shang­hai Com­pos­ite In­dex, given the loose liq­uid­ity en­vi­ron­ment and ris­ing in­vestor in­ter­est. “But mak­ing money is­be­com­ing­more­and­mored­if­fi­cult,” he said.

“Most of the daily trans­ac­tions are based on mar­gin trad­ing and this trig­gers more vo­latil­ity in the sys­tem. What hap­pened on Tues­day sug­gests that in­vestors are ap­pre­hen­sive about the mar­ket out­look, es­pe­cially with a lot of uncer­tain­ties creep­ing in.”

The bullish A-share mar­ket, which posted its strong­est growth in five years re­cently, is en­cour­ag­ing more small in­vestors to re­al­lo­cate their house­hold as­sets, es­pe­cially as the do­mes­tic prop­erty mar­ket is los­ing its sheen, said sources.

Many in­vestors are with­draw­ing their bank de­posits, re­deem­ing their wealth man­age­ment prod­ucts, or sim­ply bor­row­ing from bro­ker­ages to dab­ble in the cap­i­tal mar­ket. “It is the hottest game in town now,” the sources said.

The bal­ance of out­stand­ing mar­gin loans has risen more than two-thirds since the be­gin­ningofSeptem­berto 575 bil­lionyuanby the end of last week, ac­cord­ing to a re­port in the Fi­nan­cial Times. An­a­lysts said the growth in lever­aged fi­nanc­ing for small share­hold­ers will ex­ac­er­bate any cor­rec­tion, thus mag­ni­fy­ing the risks in the eq­uity mar­ket.

“Our re­search on fun­da­men­tals seems use­less nowa­days. The prices change so fast. The mar­ket can give high yield with high risks,” said an un­named pri­vate eq­uity fund man­ager based in Shang­hai, not­ing he did not make any money in the past week.

“Bank shares, which were in the dol­drums on Tues­day, have sud­denly emerged as the mar­ket fa­vorites. We can­not ex­plain such a phe­nom­e­non with common logic,” he said.

China Mer­chants Bank Co re­bounded from Tues­day’s 6.6 per­cent loss, jumping 8.3 per­cent, while Bank of Beijing Co added 5.4 per­cent.

Not all in­vestors are that ap­pre­hen­sive about over­all prospect. Bloomberg quoted a source with Guoyuan Se­cu­ri­ties as say­ing the Peo­ple’s Bank of China had in­jected as much as 400 bil­lion yuan into the in­ter­bank mar­ket via the China De­vel­op­ment Bank onWed­nes­day.

Though the de­vel­op­ment was not con­firmed by the au­thor­ity, an­a­lysts and econ­o­mists aver that more mon­e­tary eas­ing is on the cards and the much-an­tic­i­pated re­serve re­quire­ment ra­tio cut could hap­pen soon after Thurs­day’s con­clu­sion to the Cen­tral Eco­nomic Work Con­fer­ence. Re­serve ra­tios have re­mained un­changed at 20 per­cent for ma­jor banks and 18 per­cent for smaller banks since May 2012.

Mean­while, the lower-than-ex­pected in­fla­tion data re­leased on Wed­nes­day is strength­en­ing many in­vestors’ an­tic­i­pa­tion on fur­ther pol­icy eas­ing.

The Shang­hai Com­pos­ite has climbed 19 per­cent over the past month, the big­gest gain among93 global in­dexes, on spec­u­la­tion that theChi­nese au­thor­i­ties will ini­ti­ate­moreeas­ing to avoid a sharp eco­nomic slow­down.

An­a­lysts said the cur­rent rally has been mostly fu­eled by do­mes­tic cap­i­tal from as­set re­al­lo­ca­tions, with in­ter­na­tional in­vestors play­ing a limited role. They point to the low traf­fic on the Shang­hai-Hong Kong Stock Con­nect and said there have been no surges in any other in­vest­ment chan­nels in­clud­ing the Ren­minbi Qual­i­fied For­eign In­sti­tu­tional In­vestor scheme.

Mean­while the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion cleared ap­pli­ca­tions for 12 ini­tial pub­lic of­fer­ings on Wed­nes­day. Six com­pa­nies, in­clud­ing Spring Air­lines, Zhe­jiangXi­naoTex­tiles and Bei­jingGeoEn­v­i­ron En­gi­neer­ing Tech­nol­ogy, will go pub­lic at the Shang­hai Stock Ex­change, while the other six com­pa­nies will seek list­ing on the Shen­zhen bourse.

Most of the daily trans­ac­tions are based on mar­gin trad­ing and this trig­gers more vo­latil­ity in the sys­tem. What hap­pened on Tues­day sug­gests that in­vestors are ap­pre­hen­sive about the mar­ket out­look, es­pe­cially with a lot of uncer­tain­ties creep­ing in.” HONG HAO CHIEF STRATE­GIST WITH BO­COM IN­TER­NA­TIONAL HOLD­INGS CO IN HONG KONG

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