China and Hong Kong stocks rebounded on Tuesday morning, as Asian investors shook off a further slide in U.S. tech shares, although they remained cautious ahead of a likely US rate hike this week. China’s blue-chip CSI300 index rose 0.2 percent, to 3,579.79 points by the lunch break, while the Shanghai Composite Index gained 0.4 percent, to 3,151.25 points. Small-caps bounced back. Shenzhen’s start-up board ChiNext, which dropped 1.2 percent on Monday, gained over 1 percent.
But investors were wary as many expect liquidity to tighten. “There’s not much upside potential, as tighter liquidity will likely seep into the real economy, pressuring growth,” said Liu Sijia, strategist at Donghai Securities in Shanghai.
A small majority of traders in China’s financial markets think its central bank will likely raise short-term interest rates this week if the U.S. Federal Reserve hikes its key policy rate, as widely expected, according to a Reuters poll. Although the size of any China rate move – likely confined to rates on open market operations – is expected to be modest, a tightening could exacerbate economic growth concerns.
Most sectors rose on Tuesday, with raw material shares leading the gain.An index tracking coal producers jumped more than 2 percent, as China’s coal futures hit 2-month high.
Shares in Hong Kong shares rebounded, recovering much of Monday’s sharp falls. The Hang Seng index added 0.5 percent, to 25,841.87 points, while the Hong Kong China Enterprises Index gained 0.8 percent, to 10,565.92. Great Wall Motor Co was in the spotlight, after its Hong Kong-listed shares surged 21 percent on Monday, in what was interpreted as a victory for mainland buyers’ over foreign investors in the duel for pricing power in Hong Kong.
The stock was down 2.5 percent on Tuesday. Great Wall’s Hong Kong-traded shares are 25 percent owned by mainland investors via the Connect schemes. If the Fed raises U.S. interest rates, Hong Kong will also increase.