Earnings from state firms buoy Chinese shares

CHINA’S major stock indices rose to 20-month highs yesterday, spurred by financial shares and a spate of forecast-beating earnings reports from state industrial giants.

Sentiment was also bolstered by signs that China is stepping up efforts to restructure its lumbering and often inefficient state-owned enterprises by opening the door to more public and private investment in the long-protected sector.

The Shanghai Composite Index gained 0.9 percent to 3 362.65 points, extending its rise above the closely watched 3 300 mark, which has proved to be a stiff resistance level in the past.

There have been only fleeting breaches of 3 300 since 2015, but analysts said a combination of robust earnings and economic reforms could give the rally more staying power this time.

The blue-chip CSI300 index rose 1.2 percent to 3 842.71 points.

China’s benchmark stock indices have struggled to make headway since the government mounted a massive rescue in late 2015 after prices plunged. But traders said the prospect of sustained gains now could lure back many investors.

Financial shares led the gains yesterday, with brokerages surging as much as 6 percent at one point on expectations that they will be the biggest beneficiary of a strong stock market recovery.

“The surge in brokerage shares means the upward trend of the broad market is confirmed,” said Yang Delong, the chief economist at First Seafront Fund Management. “The 3 300-point level is now under investors’ stride. We’re already in a bull market, albeit a slow one.”

Earnings for China’s industrial firms rose 16.5 percent in July from a year earlier, data showed on Sunday. Although the pace eased from June, profits in January to July jumped 21.2 percent.

Adding to the optimism are signs that Beijing is intent on making the state sector more efficient, which could spur merger-and-acquisition activity and further reduce excess capacity in some industries that has been weighing on returns. – Reuters