September 13, 2017 / 7:20 AM / a year ago

China stocks slowly extend climb as investor confidence builds

SHANGHAI, Sept 13 (Reuters) - China stocks edged up on Wednesday to hover near 20-month highs as robust economic growth and hopes of further reforms bolster investors’ confidence, even as regulators tap the brakes on riskier types of credit.

Both the blue-chip CSI300 index and the Shanghai Composite Index ended up 0.1 percent, at 3,842.61 points and 3,384.15 points, respectively.

Consumer and real estate firms led the gains, while banking stocks weakened.

After languishing for nearly two years, China’s stock market has come alive in recent months thanks to strong corporate profit and economic growth, rekindling the interest of investors burnt by a mid-2015 crash.

An index tracking investor confidence rose to 58.6 points, the highest level since January 2016, as investors were more optimistic about economic conditions both at home and abroad, according to the China Securities Investor Protection Fund.

China’s economy has defied expectations for a slowdown this year, with early fears that a debt-crackdown will knock output eclipsed by a sustained construction boom and resurgence in global growth.

Also supporting the market, margin financing — money investors borrow from brokerages to purchase stocks — has risen in the past two weeks to the highest level this year, according to UBS Securities, reflecting improving risk appetite.

UBS strategist Gao Ting said that although policymakers remained focused on reducing financial risks, “the recent strength of the RMB against the USD points to lower risk to domestic liquidity from capital outflow.”

Indeed, the yuan’s surge this year has helped increase foreign purchases of Chinese equities.

Net purchases of mainland A-shares via the “Stock Connect” scheme increased for five months in a row to 27 billion yuan ($4.14 billion) in August, while foreign holdings under the Qualified Foreign Institutional Investor (QFII) scheme jumped 18 percent in the second quarter.

Shares of ethanol producers surged after state media reported that China plans nationwide use of ethanol in gasoline fuel by 2020, as Beijing intensifies its push to boost industrial demand for corn and reduce choking smog.

However, stocks linked to Apple Inc such as Zhejiang Crystal Optech and Goertek slumped, as investors booked profits after the launch of the much-anticipated iPhone X.

The Nov. 3 shipping date has also prompted questions about possible supply constraints ahead of the holiday season. ($1 = 6.5251 Chinese yuan renminbi) (Reporting by Luoyan Liu and John Ruwitchl Editing by Kim Coghill)

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