China stocks firmed on Thursday, aided by a jump in raw material shares as a weaker dollar triggered a rally in commodity prices. The sentiment was also boosted by easing fears of a quarter-end liquidity crunch in the banking system, as well as a rise in the yuan, which reduced concerns about capital outflows. Hong Kong shares also rose on bets that the Chinese government would unveil supportive policies as President Xi Jinping visits the former British colony to commemorate the 20th anniversary of Hong Kong’s handover to China on July 1.
China’s blue-chip CSI300 index was up 0.4 percent at 3,659.65 points by the midday break, while the Shanghai Composite Index had gained 0.3 percent, to 3,183.21 points. The raw material sector firmed 0.9 percent as global commodity prices rose on the back of a weaker U.S. dollar. Aluminium Corp rose about 2 percent, China Molybdenum increased more than 3 percent and copper maker Jiangxi Copper firmed 1 percent.
“The weaker dollar benefited China’s commodity-related stocks in an indirect way,” said Chen Yong, analyst at Lianxun Securities. “Besides, a strengthening yuan eases capital outflow fears.” Reflecting the dollar’s broad weakness, China’s yuan rose against the dollar on Thursday to its highest level in seven-and-a-half months.
Receding fears of capital outflows from China added to relief that China’s banking system does not appear to be suffering from a cash shortage at the end of the second quarter, as some had feared. Citing “relatively high” liquidity, China’s central bank skipped open market operations for the fifth day in a row on Thursday.
Shares in China’s coal miners were particularly strong, as the country said it will ban coal imports at small ports from July 1, boosting China’s coking coal futures. Shanxi Coking surged the maximum allowed 10 percent, while Shanxi Xishan Coal and Electricity Power jumped nearly 5 percent.
Hong Kong stocks also strengthened. The Hang Seng Index increased 0.9 percent to 25,910.58 points, while the Hong Kong China Enterprises Index gained 0.2 percent to 10,423.34. Financial shares rose sharply on expectations that China will announce more measures to link its markets with Hong Kong’s benefiting investment banks and brokerages.
Index heavyweight HSBC rose more than 4 percent, as Morgan Stanley upgraded the stock to “overweight” from “equal-weight”. The second board, which has dropped sharply this week as investors dumped penny stocks, slipped a modest 0.37 percent, although that is enough to set it up for a record low close.