July 19, 2017 / 4:39 AM / a year ago

China blue chips power ahead as resource shares surge; HK to rise for 8th day

SHANGHAI/HONG KONG, July 19 (Reuters) - China stocks rose on Wednesday as investors piled into banking, consumer and resources shares after robust economic growth data earlier in the week and on expectations that Beijing is stepping up efforts to reform lumbering and inefficient state companies.

Even badly bruised small caps shrugged off early weakness to end the morning higher, though traders were not sure if their recent sharp correction has ended.

The blue-chip CSI300 index rose 1.1 percent to 3,707.23 points by the lunch break, while the Shanghai Composite Index gained 0.8 percent to 3,213.09.

Start-up board ChiNext was in negative territory for most of the morning but managed to end the morning up 0.4 percent. Still, the gauge remained near the lowest level since January, 2015.

The index, long dominated by speculators, plunged early in the week in what media dubbed “Black Monday after President Xi Jinping vowed to strengthen control over financial risk.

“Blue-chips are powering ahead but ChiNext is in the abyss. Such divergent trends will be self-reinforced, and will last for at least a year,” said Chang Chenwei, trader of a Shanghai-based hedge fund house.

State-owned firms in particular were advancing on expections of further reforms, he added. Earnings of steel and coal firms, for example, have benefited from government-orchestrated shutdowns of older, more inefficient plants and mines.

The latest semi-annual reports from Chinese mutual fund houses show that institutional investors are increasingly buying into blue chips, with asset managers targeting market leaders in sectors such as banking, insurance, home appliances and automobiles.

Foreign investors are also plowing money into China’s big-caps, with the CSOP FTSE A50, the biggest yuan-denominated China-focused exchange-traded fund in Hong Kong, seeing money inflows recently.

“We believe China big-cap A stocks are still the first stop for global investors who look to get access in China especially after MSCI’s decision to include China A shares into its global index framework starting from 2018,” fund manager CSOP Asset Management wrote.

Most sectors rose in China, led by financials and raw material shares, with big players in the sector all state-owned.

An index trading coal producers jumped 3.4 percent, while non-ferrous metal shares rose 2.8 percent


Hong Kong’s benchmark Hang Seng Index was on track for an eighth straight day of gains, rising 0.5 percent to 26,652.10 by midday.

The benchmark, which saw its best week in a year in the previous week, has added 5 percent so far in the current rally.

“We see that in the second quarter, the Chinese economy is quite steady or maybe even a little better that expected, and the liquidity keeps going to Hong Kong because of still relatively low variation,” said Steve Leung, director at UOB Kay Hian Holdings.

“Also the market is expecting that during first half of earnings season, there will be a lot of upside re-ratings.”

The day’s gains were concentrated in technology stock Tencent Holdings and telco China Mobile, whose 2 percent and 0.5 percent ascent, respectively, pushed up their sectors.

Energy shares were buoyed by oil and gas major Sinopec and coal giant China Shenhua, which added 1.2 percent and 3.2 percent, respectively.

The Hang Seng China Enterprises Index, which tracks the performance of China companies listed in Hong Kong, rose as much as 1.1 percent to 10,875.70, its highest level since October, 2015.

Reporting by Samuel Shen and Rushil Dutta; Editing by Kim Coghill

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