China’s stocks rose, sending the benchmark index to a 18-month high, before the release of HSBC Holdings Plc and Markit Economics’ manufacturing report tomorrow. Industrial companies led the advance.
China Shipbuilding Industry Co., the nation’s largest maker of vessel equipment, jumped 10 percent and China CSSC Holdings Ltd. gained 2.9 percent. The HSBC report will probably show the purchasing managers’ index for September was 50.5, unchanged from the previous month’s level. The statistics bureau will release the official manufacturing index on Oct. 1.
The Shanghai Composite Index (SHCOMP) climbed 0.4 percent to 2,357.71 at the close, the highest since March 2013. The index has rallied 15 percent this quarter, the most for a three-month period since 2009, amid speculation the government’s reform measures will stem an economic slowdown and an exchange link with Hong Kong will fuel fund inflows. Hong Kong’s Hang Seng Index slid 1.9 percent amid the biggest police crackdown on protesters since the city returned to Chinese rule.
“The focus of China’s domestic market is on the government’s reform expectations,” said Wu Kan, a fund manager at Shanghai-based Dragon Life Insurance Co., which oversees about $3.3 billion. “Hong Kong’s problem is regional and the situation now still looks controllable.”
The Hang Seng China Enterprises Index (HSCEI) fell 1.4 percent. The Hang Seng China AH Premium index, which measures the weighted average gap between the largest dual-listed shares, rose as much as 2.1 percent to 100.19, signaling the discount on mainland shares has been erased.
The CSI 300 Index added 0.4 percent. Mainland markets will be shut from Oct. 1 to Oct. 7 for the National Day holidays. The Bloomberg China-US Equity Index added 0.7 percent on Sept. 26.
A gauge of industrial companies in the CSI 300 advanced 0.8 percent. China Shipbuilding Industry climbed to the highest since March 2012. Shanghai container shipping rates rose about 4 percent in September from year-earlier levels, while pricing across China gained about 0.5 percent, said Tim Craighead, director of Asian Research for Bloomberg Intelligence. Rates have increased for five months, supported by growth in U.S. and European exports this year, he said.
Datong Coal Industry Co. added 2.8 percent while Yanzhou Coal Mining Co. gained 2.3 percent. The benchmark price for China power-station coal rose to as much as 485 yuan per metric ton as of yesterday, according to data from China Coal Transport and Distribution Association. The price rebounded from the seven-year low and capped the first weekly gain since June.
Total profits of China’s industrial enterprises fell 0.6 percent from a year earlier in August, the National Bureau of Statistics said over the weekend. That compares with July’s 13.5 percent increase and is the first drop since August 2012, based on previously reported data.
With little sign of a trough in China’s economic slowdown in the final months of the year, the central bank faces increasing pressure to dust off stimulus tools that have gone unused for more than two years.
The weakening in growth, seen in manufacturing and lending data this month, catches the People’s Bank of China amid a shift in its policy framework toward adopting market-based interest rates. As targeted liquidity injections have yet to arrest the slowdown, cutting banks’ required-reserve ratios and lending rates loom as standby measures.
Arbitrage opportunities between dual-listed stocks in Hong Kong and Shanghai are disappearing as prices move toward parity before the cities link their bourses. Hong Kong’s exchange released updated rules for the link on Sept. 26. It will reject bids deemed too far below prevailing share prices as authorities seek to prevent investors from “hogging” the daily quota of buy orders available for cross-border trades.
“Shanghai continues to confound speculators, as it rallies on,” Hao Hong, Hong Kong-based strategist at Bocom International Holdings Co., wrote in a report today. “With the situation unfolding in Hong Kong, it is conceivable that overseas investors could short Hong Kong as a hedge for their long Shanghai positions after the Connect program commences.”
In Hong Kong, stocks fell the most in almost three weeks, the city’s currency dropped and equity-market volatility surged. Thousands of pro-democracy protesters remained near government offices in the Admiralty district after weekend clashes with police, who fired tear gas and pepper spray. While demonstrators still blocked one of the main roads into the central business area, calm returned as people returned to work.
Luk Fook Holdings International Ltd., which sells jewelry, sank 4.8 percent. HSBC Holdings Plc was the biggest drag on the Hang Seng Index, falling 1.8 percent. Hong Kong Exchanges & Clearing Ltd. tumbled 3.2 percent.
“Sentiment will be bad,” said Arthur Kwong, the Hong Kong-based head of Asia Pacific equities at BNP Paribas Investment Partners, which manages about $650 billion. “Unfortunately, the macro fundamentals are weak already.”