Chinese Stocks Rise on Stimulus Bets as Yuan Gains on Fixing

(Bloomberg) -- Chinese stocks kicked off the month on a positive note, with traders encouraged by signs that officials will increase stimulus to support the nation's slowing economy. The yuan jumped after the central bank set the fixing at a stronger-than-expected level.

The CSI 300 Index rose 0.7 percent Thursday, paring a rally of as much as 2 percent in the final hours of trading. It still marked the gauge's first three-day rising streak in more than two months. Brokerages jumped, while technology stocks were among the best performers onshore and in Hong Kong. The Hang Seng China Enterprises Index gained 1.4 percent. The yuan jumped 0.35 percent to 6.9496 per dollar.

China needs to take timely steps to counter the increasing downward pressure on economic growth, according to a statement from a Politburo meeting Wednesday chaired by President Xi Jinping. Separately, securities regulators have asked brokerages to help relieve liquidity pressure for listed private companies, the Securities Times reported, without specifying where it got the information.

“It takes time to restore market confidence,” said Zhang Gang, a Shanghai-based strategist with Central China Securities Co. “Some investors remain quite cautious on what's lying ahead so they chose to pocket gains while they still can.”

Officials have announced a slew of measures in recent weeks to stem a rout in mainland equities that has set the Shanghai index on course for its worst year since 2011. The gauge is among the world's worst-performing major indexes in 2018, tumbling more than 20 percent, as trade relations with the U.S. soured, the yuan weakened and the Chinese economy slowed faster than expected. Data this week showed China's manufacturing sector expanded at a slower pace last month.

Brokerages from Huatai Securities Co. to China Merchants Securities Co. climbed more than 3 percent Thursday. In an aim to give China's cabinet the flexibility to make timely adjustments when needed, the State Administration of Taxation said the State Council will continue to set rates of stamp duty under a draft law. That has sparked expectations the stock levy may be lowered and will boost trading activity, Northeast Securities said.

The yuan rose for the first time in four sessions. The currency this week dropped to a decade-low, moving closer to the key level of 7 per dollar, and putting spotlight on capital outflows from China. Policymakers will likely allow the yuan to hit 7 within the next six months without conducting heavy intervention, Goldman Sachs Group Inc. said before Thursday's fixing.

“The yuan fixing suggests the PBOC may be doing a bit of tug of war with market forces, and is still pulling to resist the yuan breaking 7,” said Christy Tan, head of markets strategy at National Australia Bank in Singapore. “But we may be at the tail end of this and the PBOC doesn't look like it will apply booster force against where the market is tugging at.”

In Hong Kong, the Hang Seng Index rallied 1.8 percent, with Internet giant Tencent Holdings Ltd. posting its biggest two-day gain since July 2015. Stocks in the city capped a six-month losing streak in October, the worst in 36 years.

Other index and stock moves:

• Shenzhen Composite Index +0.9%, Shanghai Composite Index +0.1%
• Liquor makers rebound for a second day, with Kweichow Moutai and Wuliangye Yibin rising at least 2.5%, driving a gauge of consumer stocks higher. The companies are still headed for a weekly drop
• AI-related shares surge after CCTV report of President Xi Jinping urging faster development in the sector; CSG Smart Science & Technology +10%, Iflytek +7.8%
• Property stocks jump, with Country Garden +9.2% in Hong Kong and Shimao Property +8.2% amid speculation the government may not tighten the market in the near future
• Foreign investors also piled in, purchasing a record 8.5 billion yuan ($1.2 billion) of mainland shares through stock links with Hong Kong

--With assistance from Sofia Horta e Costa and Tian Chen.

To contact Bloomberg News staff for this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net;Amanda Wang in Shanghai at twang234@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Sofia Horta e Costa, Ron Harui

©2018 Bloomberg L.P.

With assistance from Editorial Board