China stocks closed higher on Tuesday as banking shares rebounded, shaking off generally weak earnings reports and concerns about bad loans, although the selling in transport stocks left major indexes little changed. The rebound in banking shares occurred despite eroding margins and mounting bad loans seen in the latest earnings reports from the sector.
While conditions are weakening, traders said investors were relieved that interim results did not indicate a rapid deterioration in asset quality many had feared. China's markets have struggled to make headway amid growing perceptions that the central bank is in no hurry to ease policy soon, for fear of adding to already high debt levels and stoking asset bubbles.
Policymakers have shifted their focus to ramping up fiscal spending instead, but shares in companies that stand to benefit most from an infrastructure building spree have been unable as yet to gain much traction. The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.1 percent, to 3,311.99, while the Shanghai Composite Index gained 0.2 pct to 3,074.68 points.
Unless China's economic growth is at serious risk of falling below 6.5 percent, policymakers do not see the need to reduce interest rates or bank' reserve requirement ratio (RRR) again, policy advisers told Reuters, citing evidence that companies and banks are hoarding cash, instead of investing in the real economy. Banking shares rebounded on Tuesday despite generally eroding profit margins and mounting bad loans in the latest earnings reports from the sector. While conditions are weakening, traders said investors were relieved that interim results did not point to a rapid deterioration in asset quality as many had feared.
Investors apparently shrugged off warnings from credit rating agency Moody's Investors Service that China's banking system faces a systemic risk from a significantly increased reliance by small and mid-tier lenders on interbank funding. Shares of mid-sized lenders China Minsheng Banking and Industrial Bank were firm, after reporting net profit growth of 1.7 percent and 6.1 percent, respectively. But the transportation sector fell nearly 1 percent, dragged lower by airlines. China Southern Airlines' Shanghai-listed shares dropped nearly 3 percent, while its Hong Kong-traded stock slumped over 6 percent, after the carrier reported a 11 percent drop in first-half profit.