Hong Kong, China stocks start 2020 with solid gains after People’s Bank of China moves to inject cash into economy

Deb Price

Hong Kong and mainland stocks started off the new year with solid gains, as a move by China’s central bank to pump US$115 billion into the weakening economy boosted investor sentiment.

The Hang Seng Index rose 1.3 per cent to 28,543.52 Thursday, with 37 of its 50 constituent members advancing.

January has tended to be an upbeat month for Hong Kong stocks. They posted monthly gains in four out of the five past Januaries, including in 2019 when they advanced 8.1 per cent.

“Looking forward in 2020, the trade war isn’t over, but after the phase one trade deal, [US President Donald] Trump is not likely to open a new battlefield before the election,” said Alan Li, portfolio manager at Atta Capital. “So attention of the market may shift back to fundamentals, like the economy.

“Protests aren’t over, and likely become a long-term resistance, but the scale will be limited,” Li added.

The Hang Seng Index lagged behind US and China benchmarks in 2019, rising 9.1 per cent. The Shanghai Composite rose 20.2 per cent in 2019, while the S&P 500 gained 28.2 per cent. That implies a higher potential for a better return for Hong Kong stocks in 2020, Li said.

Meanwhile, the Shanghai Composite Index rose 1.2 per cent to 3,085.20, extending a winning streak into a third session.

The Shenzhen Composite Index advanced 1.9 per cent to 1,756.16, while the ChiNext Index of start-ups climbed 1.9 per cent to 1,832.74.

“Market players are generally upbeat on this year’s outlook,” said Zhou Ling, a hedge fund manager with Shanghai Shiva Investment. “The central bank’s reduction in deposit reserve ratio cemented their belief in a bull run.”

China’s central bank frees up US$115 billion to support growth

The People’s Bank of China announced on the January 1 holiday that it would reduce the deposit reserve ratio by 0.5 percentage points, sending a pro-growth message as the government battles an economic slowdown. Fresh signs of its challenge came Thursday when the Caixin manufacturing purchasing managers’ index, a gauge of sentiment among smaller private-sector factories in China, fell for the first time in five months in December.

Hang Seng Index sees 9 per cent gain in 2019 after stellar performance in December

Mainland brokerages have a consensus prediction that the A-share market will maintain an upwards momentum in coming weeks. Guotai Junan Securities forecasts that the main gauge could rise to the 3,300-point soon, 8.2 per cent higher than the close of 3,050.12 in 2019.

Meanwhile, China temporarily suspended the planned the Shanghai-London Stock Connect because of its political tensions with the UK, Reuters reported, citing five sources.

China halts Shanghai-London stock link on Britain’s political stance on Hong Kong protests

Two sources pointed to Britain’s stance on the Hong Kong protests and one pointed to remarks about the detention of a now former staff member at its Hong Kong consulate, Reuters reported.

Also in China, shares of Kweichow Moutai tumbled 4.5 per cent to 1,130 yuan after the world’s most valuable liquor distiller missed analysts’ forecast of full-year earnings in 2019. The company said in an exchange filing Thursday that it expects to post net profits of 40.5 billion yuan in 2019, up 15 per cent on year but short of the 43 billion yuan forecast by analysts.

Jefferies Equity Research reiterated its “buy” rating on Kweichow Moutai afterwards, but lowered its price target to 1,480 yuan from 1,540 yuan. The stock ran up a jaw-dropping 100 per cent in 2019, but has fallen 9 per cent from its record high of 1,241.61 on November 19.

The analysts, who said they expect “resilient growth” for the company in 2020 said its recent price weakness offers a “good entry opportunity.”

In Hong Kong, index heavyweight Tencent rose 1.8 per cent to HK$382.40.

Galaxy Entertainment led blue chip gains, rising 5.7 per cent to HK$60.70, as Jefferies put out a note saying the challenges Macau casino operators have faced have lessened. Also, Macau’s 13.7 per cent fall in gambling revenue in December was better than the 15 per cent fall predicted by analysts, Jefferies analysts pointed out in their note.

Alibaba, the e-commerce giant that owns the South China Morning Post, climbed 1.4 per cent to HK$210.

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