China and Hong Kong stocks rallied on Wednesday morning, extending the previous day’s gains, encouraged by signs that China will unleash fresh stimulus to support the economy.
But trading in mainland stocks and index futures remained thin, reflecting persistent investor caution, as well as the side effects of the tough medicine prescribed for China’s ailing stock market.
China’s blue-chip CSI300 index rose 1.7 per cent to 3,390.25 points at lunch time, while the Shanghai Composite Index also gained 1.7 per cent to 3,224.12 points.
In Hong Kong, the Hang Seng index jumped 3.0 per cent to 21,889.54 points, while the China Enterprises Index, which tracks Chinese companies listed in Hong Kong, surged 4.4 per cent to 9,892.30 points.
China’s Ministry of Finance said on Wednesday that the government will strengthen fiscal policy, boost infrastructure spending and speed up reform of its tax system to support the economy, adding to other steps by authorities to re-energise sputtering growth.
“The rebound is the result of sharp share price falls previously, and the accumulative effect of government supportive measures,’’ said Zhou Lin, analyst at Huatai Securities.
“But is too early to judge if the rally is sustainable, because there’s still heavy selling pressure.’’
Regulators have urged brokerages to clean up grey-market margin loans by the end of this month, potentially triggering forced liquidation worth over 200 billion yuan ($31.38 billion), local media reported.
Chinese stocks rose across the board on Wednesday morning, but a key index tracking banking shares was flat, as some investors took profit from the previous day’s rebound.
Some stocks related to China’s planned restructuring of state-owned enterprises (SOEs) outperformed.
‘This SOE reform theme seems to remain as one of the most popular thematic investments,”’ wrote Gerry Alfonso, director of Shenwan Hongyuan Securities Co.
‘There is a reasonably high degree of certainty that there will be significant developments in the not too distant future, including further M&A deals as well as company restructuring.”’
In Hong Kong, all the main sectors rose on Wednesday morning, with financial and utilities taking the lead.
Cheung Kong Infrastructure Holdings Ltd (CKI) jumped 4.4 per cent, after the firm, part of billionaire Li Ka-shing's business empire, offered on Tuesday to buy all the shares it does not already own in Hong Kong utility Power Assets Holdings Ltd in an all-stock transaction valued at $11.6 billion.
Power Assets jumped 6.2 per cent. ($1 = 6.3681 Chinese yuan)