China stocks were firm on Monday morning as a slew of mid-year company earnings reports showed tentative signs of bottoming-out in struggling sectors such as coal and steel, with further recovery expected in the second half.
But Hong Kong stocks, which are more vulnerable to global money flows, dropped after U.S. Federal Reserve Chair Janet Yellen indicated an interest rate increase remains on the cards for this year.
Both the blue-chip CSI300 index and the Shanghai Composite Index rose 0.1 percent, to 3,311.31 points and 3,071.79 points, respectively, by lunch break.
As of last Friday, over 2,000 China-listed companies had released interim results, while the remainder will publish earnings this week.
For investors grappling with an economy showing signs of stress in many sectors, there were clear earnings improvement in the much-maligned bloated sectors.
These included positive earnings growth in the coal industry, while the steel sector swung to a profit and profit decline at construction materials firms narrowed sharply, according to UBS.
“A-share earnings growth in H1 has slowed from Q1 but remained solid,” wrote Gao Ting, head of China strategy at UBS Securities.
“Given a high base in the same period last year, we see the level of growth as decent, which will likely shore up the market.”
An index tracking the industrial sector rose 1.1 percent, also aided by news that profits earned by China’s industrial firms grew at their fastest pace in four months in July, aided by a pick-up in sales and reduced costs.
But the banking sector fell 0.5 percent, as lenders will likely be hit by a plan – to be rolled out as soon as next month – that will encourage banks to convert loans into equities in struggling borrowers.
UBS forecast China’s financial earnings will be down 5 percent this year, compared with 7.5 percent profit growth for non-financial firms.
In Hong Kong, the Hang Seng index dropped 0.4 percent, to 22,829.95 points, while the Hong Kong China Enterprises Index lost 0.6 percent, to 9,497.44.
Yellen’s relatively upbeat tone in a speech on Friday at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming, appeared to weigh on the Hong Kong market.
The Fed chief said the case for a rate hike has strengthened in recent months, with a lot of new jobs being created, while economic growth looks likely to continue at a moderate pace.