Mainland blue- chip index hovers near 18- month highs

Chinese mainland’s blue- chip index hovered near 18- month highs on Monday, as institutional investors stepped up their buying into industry leading big caps, but small- cap shares continued to languish as their earnings disappointed.

The mood was also aided by views that China may maintain high levels of fiscal spending to avoid the risk of a sharp economic slowdown in the second half.

The blue- chip CSI300 index rose 0.40 percent to 3,743.47 points, while the Shanghai Composite Index gained 0.39 percent to 3,250.60 points.

Robust government infrastructure spending was a key contributor to stronger- than- expected economic growth in the first two quarters.

The IMF said on Monday it now expected stronger growth of 6.7 percent in China in 2017, up 0.1 percentage point from its April forecast.

Financial and consumer shares were firm after second- quarter reports by mutual funds showed institutional investors continued to accumulate blue chips with stable earnings.

But Shenzhen’s start- up board ChiNext extended its slide following last week’s nearly 5.11 percent slump on fears of tighter regulations and weak earnings. The index fell 0.22 percent.

Gao Ting, head of China strategy at UBS Securities, expected ChiNext firms’ second- quarter earnings growth to range from a drop of 23 percent to a growth of 5 percent, based on their preliminary announcements, representing a sharp slowdown from a growth of 26.2 percent in the first quarter.

“The ChiNext seems unlikely to reverse course, in our view,” Gao wrote, citing numerous headwinds including a rapid pace of listing approvals that increase equity supply, as well as tighter liquidity and low risk appetite.