China stocks rose on Monday on signs that tight liquidity conditions were easing and as fewer new listings were expected to come onto the market. The CSI300 index rose 1.0 percent to 3,552.05 points by the end of the morning session, while the Shanghai Composite Index gained 0.7 percent to 3,143.77. Traders said liquidity conditions improved as the central bank continued to provide funds via open market operations, after injecting a net 410 billion yuan into money markets last week, the biggest weekly injection since mid-January.
Liquidity typically tightens in China’s financial system in June due to tax payments and as banks look to make their books look better for the end of the month and quarter. But the seasonal pinch has been compounded this year by a regulatory clampdown on riskier forms of financing which has been banks hoarding more cash than usual. Still, authorities appear to have paused their campaign in recent weeks, possibly due to concerns over liquidity or perhaps an indication that they are assessing earlier policy steps to see if they are starting to slow the real economy, as many analysts predict.
“Liquidity conditions have eased as the government has recently decreased its focus on tightening financial regulations,” UBS Securities wrote in a report. Expectations of fewer new listings also supported Chinese stocks on Monday, particularly small-caps whose valuations had been pressured by worries of more equity supply. China’s securities regulator approved six initial public offerings (IPOs) that aimed to raise a combined total of up to 3.4 billion yuan ($499.22 million). It was the fourth straight week that the pace had slowed down from an average of around 10 IPOs in the past months.
Chinese investors are also awaiting a decision by U.S. index provider MSCI, which will decide on June 20 whether to include A shares in its Emerging Market Index. The stock regulator said it would be happy for MSCI index inclusion, but Chinese capital market reform will not be derailed without the inclusion. “The inclusion could bring about 60.7 billion yuan into the (A-share) market, but the impact would be limited if the inclusion does not happen,” Haitong Securities wrote.
Sectors rallied across the board, led by financial and consumer stocks. Real estate stocks gained 0.7 percent, after data showed China’s month-on-month home price growth remained robust in May, rising 0.7 percent nationwide despite a string of cooling measures across the country. Still, monthly price rises largely stalled in the country’s biggest cities such as Beijing and Shanghai.
Hong Kong stocks follow other Asian markets higher, shaking off Wall Street’s uninspiring performance on Friday. The Hang Seng index rose 0.9 percent to 25,868.02 points. The Hong Kong China Enterprises Index gained 1.4 percent to 10,527.48.