China’s blue-chip index hovered near 18-month highs on Monday amid signs that fund managers are ramping up their bets on industry leaders such as Ping An and Gree Electric, but small-caps continued to languish as their earnings disappoint. The mood was also aided by views that China may maintain high levels of fiscal spending to avoid the risk of a sharp economic slowdown in the second half. The blue-chip CSI300 index rose 0.3 percent to 3,738.78 points by the lunch break, while the Shanghai Composite Index gained 0.2 percent to 3,243.77. China published draft rules late on Friday to promote the development of public-private partnerships (PPP) in infrastructure investments, while the Shanghai Stock Exchange announced it would support the securitisation of PPP projects.
Robust government infrastructure spending was a key contributor to stronger-than-expected economic growth in the first two quarters, though analysts have predicted some loss of momentum in the second half of the year as the impact of earlier stimulus measures begins to fade. The International Monetary Fund said on Monday it now expected stronger growth of 6.7 percent in China in 2017, up 0.1 percentage point from its April forecast. Expectations that Beijing will maintain high public investment also led the IMF to raise China’s 2018 forecast growth by 0.2 percentage point to 6.4 percent.Financial and consumer shares were firm after second-quarter reports by mutual funds showed institutional investors continued to accumulate blue chip with stable earnings. Industry heavyweights including Ping An Insurance Group of China, Gree Electric Appliances, China Pacific Group Insurance and China Merchants Bank are among fund managers’ favourites in the second quarter.
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But Shenzhen’s start-up board ChiNext extended its slide following last week’s nearly 5 percent slump on fears of tighter regulations and weak earnings. The index fell 0.7 percent.Gao Ting, head of China strategy at UBS Securities, expected ChiNext firms’ second-quarter earnings growth to range from a drop of 23 percent to growth of 5 percent, based on their preliminary announcements, representing a sharp slowdown from growth of 26.2 percent in the first quarter.”The ChiNext seems unlikely to reverse course, in our view,” Gao wrote, citing numerous headwinds including a rapid pace of listing approvals that increase equity supply, as well as tighter liquidity and low risk appetite.
Hong Kong’s benchmark Hang Seng Index rose 0.5 percent to 26,831.61, driven by broad-based gains in consumer and technology shares. The benchmark, which added 1.3 percent last week, had seen a cool off on Friday after nine straight sessions of gains.The Hang Seng China Enterprises Index, which tracks the performance of China companies listed in Hong Kong, was 0.3 percent higher at 10,824.69. Analysts had seen Friday’s slowdown as a breather after a spate of gains, adding they didn’t expect the weakness to last.Gaming business Galaxy Entertainment was among the top advancers on the main index with a 3 percent rise, joined by builder CK Infrastructure Holdings’ near 3 percent surge. Auto maker and retailer Geely Automobiles Holdings was the top gainer, adding 6.4 percent. Geely so far this year is the benchmark’s best performer in percentage terms, having more than doubled its stock price. Technology shares were taken higher by a near 1 percent rise in Tencent Holdings.
The energy sector, however, was the only one to take a beating after oil prices skidded on Friday. PetroChina and CNOOC were 0.4 percent and 1.2 percent lower, respectively. Oil prices regained some ground on Monday ahead of an OPEC and non-OPEC meeting later in the day, which investors expect may address rising output in Nigeria and Libya, two OPEC members so far exempt from a push to cut production.