China Market gains 1.31% on stimulus hopes

The Mainland China equity market extended gain on Tuesday, 21 August 2018, as investors continued chasing for heavily battered stocks after benchmark indices last week slipping below its lowest closing level of 2016. Meanwhile, buying momentum was spirited by tracking positive finish on Wall Street overnight on optimism about U.S.-China trade talks and on signs the government will relax monetary and fiscal policies to counter the impact of Sino-U.S. trade friction. At closing bell, the benchmark Shanghai Composite Index inclined 1.31%, or 35.36 points, to 2,733.83, meanwhile the Shenzhen Composite Index, which tracks stocks on China's second exchange, rose 1.39%, or 20.21 points, to 1,471.28. The blue-chip CSI300 index added 1.82%, or 59.40 points, to 3,326.65.

China is likely to cut banks' risk weighting for local government bonds from 20 percent to zero in the near term to attract funding for the bonds, the state-run China Securities Journal reported on Tuesday. The move, if confirmed, would make it easier for local governments to raise money for infrastructure investment.

 

Market participants are awaiting developments in the US-China trade conflict after the two countries said on Thursday, 16 August 2018, that they would hold lower-level trade talks next week. As per reports, the talks in Washington would take place on August 21 and 22, just before $16 billion in new US tariffs on Chinese goods take effect, along with an equal amount of retaliatory tariffs from Beijing. The US Trade Representative's office said on Friday it doubled the length of tariff hearings on the next $200 billion worth of Chinese goods to six days from the previously planned three due to overwhelming demand from companies to testify. The hearings will be held Aug. 20-24 and on Aug. 27.

Around $1.5 trillion has been wiped from the Shanghai Composite Index since it hit a more than two-year high in January. Investors have been spooked by factors ranging from Beijing's deleveraging campaign and its impact on liquidity, to a heated trade dispute with the U.S., a weakening yuan and signs of a slowing economy.

NEWS FROM THE PRESS: Geely in global push -- AUTOMAKER Geely has agreed to extend its existing partnership with Proton Holdings Berhad to upgrade the Malaysia carmaker's line-up of cars and power Proton go beyond Malaysia, part of an ongoing effort to help Proton establish a presence in China and other international markets.

BMW venture -- BMW will give the possibility of raising its stake in its Chinese joint venture careful consideration. Potential for the German carmaker to boost its Chinese stake was opened up when the National Development and Reform Commission said in April that the country would scrap foreign ownership limits on commercial vehicle manufacturers in 2020 and lift restrictions on passenger vehicle companies in 2022.

Guangdong to invest heavily in high-end industries -- GUANGDONG aims to invest more than 450 billion yuan (US$65.46 billion) in strategic and emerging industries in the three years through 2020. The move came in line with the country's effort to upgrade its industries toward higher-value, low-pollution production. The province plans to keep an annual industrial investment growth rate of around 6 percent over the coming three years and boost strategic industries such as information technology, high-end equipment manufacturing, green and low carbon, bio-medical, new materials and marine economy, according to a statement from the Guangdong government. The statement asked local authorities in the Pearl River Delta, a manufacturing hub in South China, to attract more companies in electronic and automobile industries' supply chains. The provincial government also urged local authorities to speed up construction of industrial parks and give more preferential packages, including easier access to land, to attract companies in key industries. It also plans to launch an off-shore wind power generation base in the southwestern part of the province and hundreds of pilot projects in smart manufacturing.

CURRENCY NEWS: China's yuan hit a 10-day high against the U.S. dollar on Monday, following a firmer fixing by the central bank and as immediate worries about global trade receded, taking some of the shine off the safe-haven greenback. The sharp turnaround in the Chinese currency came after it booked 10 straight weeks of losses, the longest weekly losing streak since the exchange rate was unified in 1994, shedding nearly 9 percent to the dollar since the end of March. Some market participants believe a test of the psychologically critical 7 per dollar level is only a matter of time, although regulators may be keen to send a signal about their low tolerance for aggressive selling ahead of this. Prior to market opening yesterday, the People's Bank of China set the midpoint rate at 6.8718 per dollar, 176 pips or 0.26 percent firmer than the previous fix 6.8894. Yesterday's official midpoint largely matched market forecasts to reflect the broad weakness in the greenback, unlike the higher-than-expected fixings seen last week. The dollar fell against a basket of six other major currencies, retreating from a 13-month high hit last week as investor demand for the safe-haven currency receded on optimism over an apparent easing in U.S.-China trade tensions. In the spot market, the onshore yuan opened at 6.8595 per dollar and surged to a high of 6.8450 at one point, the strongest level since Aug. 10. The offshore yuan, which has strengthened more than 0.4 percent since Thursday's close, gave back some of its gains yesterday as tightness in yuan liquidity offshore faded.

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