ASIA MARKETS: Shanghai Stocks Jump On Talk Of Stock Connect Launch
By Kenan Machado and
Nikkei nudges lower after GDP misses expectations
China stocks surged Monday as traders viewed Chinese credit data in the best possible light and on hopes of an imminent formal announcement of a Shenzhen-Hong Kong trading link.
Australia’s S&P/ASX 200 recovered from early declines to trade up 0.2%, while the Nikkei Stock Average was down 0.3%. South Korean stock markets were closed for a holiday.
China’s rally was partly fueled by a surge in brokerage stocks, in turn propelled by renewed hopes for the launch of Shenzhen-Hong Kong Stock Connect within 2016.
Hong Kong Economic Journal reported Monday that the trading link could be announced as soon as this week and that it would be officially launched in December. The China Securities Regulatory Commission said last Friday that it had formed a special work team with its Hong Kong counterparts to prepare to launch the link
The scheme would let Hong Kong investors buy Shenzhen stocks, and Shenzhen investors buy Hong Kong stocks.
“[Shenzhen-Hong Kong connect] has two positives: the first is it shows that this period of worry in Beijing about currency outflows has passed,” said Erwin Sanft, a regional strategist at Macquarie. “But in a more practical way, it opens up increased access to the China market.”
Investors in Chinese local markets piled into financial and property blue-chips after latest data showed mortgage lending drove China’s new loan growth in July. Blue-chips are expected to benefit before the official announcement of the trading link as foreign funds tend to prefer large-cap stocks with lower valuations, according to Dai Kang, a strategist at Huatai Securities.
Data released after the market close Friday showed China’s new yuan loans dropped to 463.6 billion yuan ($70 billion) in July, with home mortgages constituting most of the lending, totaling 457.5 billion yuan, with corporate lending dropping.
That surprising result stoked worries about slowing business growth in China. Nevertheless, traders did their best to view the figures positively, as “the market is in desperate need of an outlet and breakthrough. There’s simply too much liquidity on the market,” said Deng Wenyuan, an analyst at Soochow Securities. “The absence of regulatory intervention over the surge in these blue-chips hints that Beijing is in favor of [the rally].”
The Nikkei benchmark was relatively unscathed despite Japan’s gross domestic product (http://www.marketwatch.com/ story/japans-economy-unexpectedly-flat-in-second-quarter-2016-08-14) for the April-June quarter expanding at an annualized 0.2%, missing expectations for a 0.7% rise. April-June exports also fell, by 5.9% in real, annualized terms, after a modest 0.4% rise in the previous quarter, suggesting a global slowdown was hitting demand in Japan’s export markets.
“This GDP number is a backward looking indicator and represented the economic conditions prior to the Abe government’s newly introduced stimulus package,” said Ashley Pittard, head of global equities at BT Investment Management . ” Therefore the market is looking ahead to gauge how successful these new measures will be to jump starting the Japanese economy.”
The prices of Japanese government bonds with maturities of 20 years or less fell Monday, amid speculation about a review next month by the Bank of Japan of its policies. The Nikkei financial daily said in its Saturday morning edition that the Japan’s financial services regulator, the Financial Services Agency, showed in a survey that the BOJ’s negative rates policy would siphon off at least Y300 billion of profits from Japan’s three largest banks for the fiscal year ending March 2017. The FSA also expressed concern that negative rates were diminishing banks’ ability to lend.