China shares in biggest daily gain since party plenum as volumes surge

Wed Jan 22, 2014 4:09am EST

* HSI +0.2 pct, H-shares +1.1 pct, CSI300 +2.6 pct

* China c.bank pledges to maintain stability in money markets

* Shanghai volumes spike as property developers lead rally

By Clement Tan

HONG KONG, Jan 22 (Reuters) - China shares chalked up their biggest daily gain in two months on Wednesday, lifting Hong Kong markets as cash rates in the mainland eased further after the Chinese central bank pledged to ensure stability in the money markets.

Gains came in robust volumes in both markets as the battered Chinese property sector led the rebound from multi-month lows. The resurgent mainland market spurred more short-covering in the Chinese financial sector in Hong Kong.

The CSI300 of the largest Shanghai and Shenzhen A-share listings ended up 2.6 percent at 2,243.8 points, while the Shanghai Composite Index climbed 2.2 percent. This was their strongest single-day gain since Nov. 18, when markets first reacted to the detailed outcome of the Communist Party's third plenum, a key policy meeting.

The CSI300 benchmark had closed on Monday at its lowest since July 9 after China's benchmark seven-day repo rate soared to as high as 10 percent, just shy of the 11.2 percent record closing high seen at the end of June.

The China Enterprises Index of the leading Chinese listings in Hong Kong rose 1.1 percent, while the Hang Seng Index inched up 0.2 percent to 23,082.3 points as Hong Kong turnover jumped some 23 percent above its 20-day average.

Gains came in the strongest Shanghai volumes since Dec. 16 that was also nearly 40 percent above its average in the last month as investors also cheered comments from Premier Li Keqiang that Beijing is confident of "stable" economic growth this year.

Short selling in Hong Kong accounted for 9.2 percent of total turnover, compared with the 8 percent historical average.

"The cyclicals and the blue chips are leading the rebound today, which usually point at policy relief. It's more a relief rally at this point, especially since some of these growth-sensitive counters have been hit quite badly," said Cao Xuefeng, a Chengdu-based analyst with Huaxi Securities.

The relief may not last too long, with three more scheduled open market operations due before the Lunar New Year holiday starts next Friday. The HSBC manufacturing flash purchasing managers' index for January is due on Thursday.

There are concerns about excess share supply, said Arnout van Rijn, Robeco's lead Asia Pacific portfolio mananger. This could get particularly acute with a tightening money supply, with more than 700 applications and only about 50 approvals so far after a halt of more than a year.

Still, mid-sized lenders Industrial Bank jumped 2.9 percent in Shanghai and Ping An Bank spiked 3.8 percent in Shenzhen as China's benchmark 7-day repo rate eased by as much as 188 basis points from Tuesday's close.

The central bank dumped 255 billion yuan ($42 billion) into the interbank market in the first of two scheduled open market operations on Tuesday, its first injection since Dec. 24 and the largest amount in a day in 11 months.

Following that, the People's Bank of China said on its twitter-like Weibo account late on Tuesday that it had already provided short-term funding to small- and medium-sized financial institutions, amid fears another cash squeeze was building similar to one last June and December.

MOVERS AND SHAKERS

Shares of China Vanke, the mainland's largest property developer by sales, jumped 5.5 percent in Shenzhen on Wednesday to its highest close since Jan. 3.

Rising home prices have raised fears of more curbs, while the tightening liquidity conditions have also stoked jitters of funding difficulties for the sector.

Poly Real Estate shares soared 7.3 percent in Shanghai, cutting losses on the year to 1.9 percent after plunging nearly 40 percent in 2013. In Hong Kong, China Overseas Land climbed 2.6 percent, while Shimao Property spiked nearly 6 percent.

Deutsche Bank analysts said in a note dated Jan. 21 that such funding concerns are overdone since property sales performance remained strong during the end-June cash crunch even as short-term cash rates surged to more than 11 percent.

CITIC Securities rose 4.6 percent in Hong Kong and 3.2 percent in Shanghai after China's largest listed brokerage posted its fastest rate of profit growth in three years in 2013, reversing a fall in 2012.

The Macau casino sector was a big drag in Hong Kong after JP Morgan downgraded the sector. Galaxy Entertainment sank 5.5 percent and Sands China fell over 4 percent.

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