China's major share indexes rebounded on Wednesday as investors piled into blue chips after robust economic growth data 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 higher, though traders were not sure if their recent sharp correction has ended.
The blue-chip CSI300 index rose 1.7 percent to 3,729.75 points, while the Shanghai Composite Index gained 1.4 percent to 3,230.98. Start-up board ChiNext ended up 1 percent, but still hovered near a 2-1/2-year low on fears that regulators will clamp down further on riskier forms of financing.
The index, long dominated by speculators, plunged 5 percent on Monday 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 expectations of further reforms, he added. Earnings of steel and coal firms, for example, have benefited from a government drive to shut older, more inefficient plants and mines. Authorities have also been orchestrating mergers in the bloated state sector to create companies which are more competitive.
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 gained ground. Shares of raw materials producers far outperformed the broader market with a 3.6 percent gain, after some firms in the sector forecast robust mid-year earnings growth. But shares in Suning Commerce Group Co Ltd tumbled as much as 6 percent, after the Chinese retail giant was referenced in a state television programme that was broadly focusing on local firms making risky overseas acquisitions.
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