Wall Street rally fuels gains ahead of reopening of Chinese markets after holiday
06/10/2017 14:18 AST
Hong Kong shares clinched their best weekly advance since July, helped by China's efforts to direct bank credit to small businesses.
The Hang Seng Index added 3.3% during the week, which was shortened to three trading days because of public holidays. The gauge climbed 0.3% on Friday to 28,458.04, a closing level it had not seen since December 2007.
Geely Automobile Holdings, the gauge's best performer in 2017, rallied 24% during the week, taking the automaker's year-to-date gains to 269%. Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BOC) and Bank of Communications each rose at least 5% over the week.
The gains followed the People's Bank of China's announcement last weekend that it will selectively reduce the amount of reserves lenders are required to keep with it, freeing up more funds for lending at banks with a higher credit exposure to small businesses. Some participants have said the move, which comes amid ongoing efforts by the authorities to reduce the indebtedness of larger corporations which have better access to credit, should not be interpreted as a loosening of the PBOC's policies.
"The Chinese government is channeling the capital flow to where they believe it will contribute to economic growth," Tai Hui, chief market strategist for Asia at J.P. Morgan Funds, said at a press briefing on Friday. "It is not a U-turn from the deleveraging process, but aimed at improving the quality of leverage."
Geopolitical tensions related to North Korea, the U.S. Federal Reserve's policy stance and U.S. earnings growth will likely be the most influential factors in determining global market performance in the fourth quarter, he said.
Sentiment this week was bolstered by a string of record closes on Wall Street, fueled by upbeat U.S. economic data and speculation that U.S. President Donald Trump will be successful in pushing tax reform plans through Congress. Investors are looking ahead to U.S. nonfarm payrolls data for September, due later on Friday, for further clues on the strength of the labor market, and how that might influence monetary policy. There is a more than 80% probability that the Fed will raise interest rates for a third time this year at its December policy review, according to CME FedWatch.
Chinese equity markets will reopen on Monday after a weeklong holiday break, giving mainland investors an opportunity to react to the PBOC's move and the nation's manufacturing data for September. Official data released last Saturday showed the manufacturing Purchasing Managers' Index at 52.4 last month, an unexpected improvement over the August reading of 51.7. Figures above 50 signal an expansion of activity.
"Mainland markets will be stable next week, ahead of the 19th National Party Congress," said Ben Kwong, executive director at KGI Asia, referring to the Communist Party meeting later this month where the country's top leadership for the next five years will be decided.
The Shanghai Composite has risen 7.9% so far this year, compared with a nearly 30% advance for the Hang Seng Index.
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