Hong Kong and China shares moved above their 250-day moving averages in robust turnover on Monday, on anticipation that reduced inflation pressures in the Chinese economy and favourable earnings could sustain a rally that began last week.
Optimism that authorities in China would let up on monetary tightening as economic growth moderates and as inflation peaks –coupled with projected strong corporate earnings — has caused several brokerages, including Nomura on Monday, to forecast strong second-half gains for shares.
“We expect several catalysts will likely create buying opportunities, including less aggressive interest hikes, CPI slowdown, more fiscal stimulus and increased efforts to boost investment,” Nomura analysts said in a note.
Hong Kong’s Hang Seng Index rose 1.7 percent to 22,770.5, closing above its 250-day moving average for the first time in three weeks as turnover improved.
In its note, Nomura upgraded positions on industrial, material and consumer sectors to overweight and raised banks to neutral. It cut its telecom and utility weighting to neutral, believing these defensive sectors will underperform as the market rebounds in the second half.
A trader at a large Hong Kong-based brokerage said a U.S. macro fund was buying Chinese banking shares, a sector often considered a proxy for the economy and one which has a large enough weighting on benchmark indices to lift the broader market.
China Construction Bank , trading at valuations close to the lows of the financial crisis in 2008 of around 7 times forward 12-month earnings, rose 1.7 percent.
Auto stocks rallied in both Hong Kong and China markets, led by Warren Buffet-backed BYD Co which jumped 10.1 percent tracking the blistering performance of its Shenzen-listed A-shares which closed limit-up and are up 71 percent from their listing price of 18 yuan a share.
Market players cited talk of government agencies meeting to discuss policies to boost auto sales. Auto stocks have been hammered this year as an end to subsidies and sluggish sales prompted an exit from the sector.
SHANGHAI JUMPS IN SURGING TURNOVER
The Shanghai Composite Index surged 1.9 percent on Monday to finish above its 250-day moving average for the first time since late May, closing at a six-week high to 2,812.8 points as turnover hit its highest since late April.
An improving liquidity situation was also cited as a reason for Monday’s robust turnover with China’s benchmark short term money market rate dipping 119 basis points, suggesting short term lending rates are getting less prohibitive.
“Things look a little different now,” said Zhang Qi, an analyst with Haitong Securities. “Investors don’t seem that worried about rate hikes anymore, are more optimistic and coming back into the market looking to ride on the bounce.”
Gains at beaten-down energy and financial plays helped lift the Shanghai Composite. PetroChina Co Ltd was up 1.1 percent on the day.
The stock had lost 8.49 percent in the second quarter, during which the Shanghai Composite fell 5.67 percent.