Shanghai shares jumped two percent, lifting the Hong Kong market, on Monday, as investors scooped up large-cap banking and energy stocks on growing optimism over China's economy. The Shanghai Composite Index rose 2.1 percent to 2,661.7, and the rally helped Hong Kong's Hang Seng Index reverse early losses to stand up 0.1 percent, though sharp losses in property shares took a toll.
The Shanghai Composite Index lost almost a quarter of its value in the second quarter after Beijing moved to rein in property speculation, stirring fears that harsh tightening would lead to a sharp economic slowdown. This quarter, Chinese equities have outperformed regional markets as investors have pumped money back in on data showing fears of a hard landing for the economy were overblown.
"We think the market has largely factored in the potential policy risk and the potential domestic economic slowdown in the second half," Bank Julius Baer told clients in a note. "So we maintain our overweight rating on China's A-share market." Wang Aochao, an analyst at UOB Kay Hian in Shanghai, projected the market continuing to rebound, perhaps another 150 points, to 2,800 points in the next two weeks. "The market is quite solid at this point," he added.
Economists are confident China's economic growth in 2010 will beat last year's outcome of 9.1 percent and catapult China ahead of Japan as the world's second-largest economy. China's targeted stimulus measures to stoke domestic consumption and still-robust GDP growth are a stark contrast to slowing exports and rising deflationary trends in Japan.
Shanghai-listed shares of Agricultural Bank of China rose 0.74 percent after the bank exercised the greenshoe option on its initial public offering, making it the world's biggest at $22.1 billion.
Analysts said a larger-than-expected 76.3 percent jump in newly-listed Jihua Group, China's biggest military supply provider, also indicated investors were more confident about buying back into the market. In Hong Kong, shares of real estate developers suffered the brunt of the latest tightening measures by authorities to damp property prices heading for historic highs. The new steps cut primary transactions by more than half over the weekend versus a week earlier, property agent Centaline said.
While the new cooling measures were relatively mild, the tone was "severe", said David Ng, an analyst at RBS, suggesting the government could take more steps if prices continued to rise. The Hang Seng property sub-index fell 2.8 percent, underperforming the broader market. Sun Hung Kai Properties was down 4 percent, while Cheung Kong, owned by property tycoon Li Ka-shing, was 2.4 percent lower.
"The impact of the new measures has already been fully reflected in the stock falls on Friday and today," said UBS analyst Eric Wong, who expects home prices to rise a combined 35 percent this year and next. Further weakness could be a buying opportunity, he added. The broader index found support in defensive plays such as utilities and telecoms companies.
China Mobile Ltd, which has a weighting of 9.4 percent on the Hang Seng Index, rose 1.4 percent. Bank of Communications was up 2.1 percent. Footwear retailer Belle International Holdings Ltd and China Coal Energy Co Ltd jumped higher after the two companies were added as constituents of the Hang Seng Index.