Shanghai stocks end at two-week high, as materials sector leads gains

Mainland’s main share index ended at a two-week high on Monday, but pared some of its earlier gains in thin turnover as investors were reluctant to stake out fresh positions ahead of the country’s biggest holiday.

Most sectors were largely unchanged but gains were led by the materials sector, underpinned by a broadly weaker US dollar.

The Shanghai Composite Index gained 0.4 percent to 3,136.77 points while the blue-chip CSI300 index rose 0.3 percent, to 3,364.08 points.

The People’s Bank of China said on Friday it would provide temporary liquidity support for 28 days to several major banks to address seasonal liquidity stress ahead of the Lunar New Year, a new policy tool designed to ease cash shortages.

The stock market will be closed from Jan 27 to Feb 2.

Media reported on Monday that the move signaled stable and neutral monetary policy.

“Given the rising inflation and stable growth, the focus of monetary policy is unlikely to move away from containing financial risk for now,” Larry Hu and Jerry Peng from Macquarie Securities wrote in a research note.

Among best thematic gainers were defense stocks, which added 1.3 percent, after news President Xi Jinping would head a new commission overseeing joint military and civilian development.

Meanwhile, a gauge of 90-day volatility on the Shanghai Composite Index fell to a 24-year low at the end of December and has barely budged since, while turnover on the equity exchanges slumped to the lowest in two years last week.

The Shanghai Composite slumped 12 percent last year, and remains down about 39 percent from its 2015 peak. Combined turnover in the Shenzhen and Shanghai exchanges fell to 294 billion yuan ($40 billion) on Thursday, the lowest for a full-day’s trading since November 2014.

The only time it’s been lower was on Jan 7 last year, when circuit breakers ended trading after just 29 minutes.

“Seasonality is a factor, but more importantly, investors are looking at other alternatives for return, rather than stocks,” said Kenny Wen, strategist at Sun Hung Kai Financial Ltd in Hong Kong. “They are not confident that stocks will give them a good return even with state support.”