China blue-chips hit 19-month high on upbeat factory report

An investor looks at an electronic screen at a brokerage house in Hangzhou, Zhejiang province, on Jan 26, 2016.
An investor looks at an electronic screen at a brokerage house in Hangzhou, Zhejiang province, on Jan 26, 2016.PHOTO: REUTERS

SHANGHAI (REUTERS) - China stocks extended a rally on Tuesday (Aug 1) morning with the blue-chip index scaling a 19-month peak, as investors cheered a private survey showing the country's factory activity accelerated in July.

Shares in Hong Kong were buoyant too, with the benchmark reaching its highest since June 2015 and an index of mainland stocks surged 1.8 per cent to its strongest since August 2015.

China's blue-chip CSI300 index rose 0.6 per cent, to 3,760.76 points at the end of the morning session. It earlier rose as high as 3,764.43, its highest since December 2015.

The Shanghai Composite Index gained 0.4 per cent, to 3,286.31 points. In July, the CSI300 advanced 2.0 per cent, while the SSEC gained 2.5 per cent.

Growth in China's manufacturing picked up its pace in July, a private survey showed on Tuesday, as output and new orders rose at the fastest pace since February on strong export sales.

The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) rose to 51.1 in July, above the 50-point mark that separates growth from contraction, and well above June's 50.4, which was also the median projection from 21 analysts in a Reuters survey.

Alleviating concerns that Beijing's deleveraging efforts could hurt economic growth, a top official at the nation's central bank said it will continue to force financial institutions to cut debt but ensure the process is smooth and orderly to limit the impact on market liquidity.

In sharp contrast with continued gains in blue-chips, start-ups remained sluggish, with the start-up board index nearly flat on Tuesday after notching a loss of 4.5 per cent in July.

Last Thursday, the ChiNext board rose 3.62 per cent, its best day in 14 months, raising hopes start-ups could rebound after their sustained weakness in the past two years.

But investors may have read too much into the fact that the some state-back funds - dubbed China's "national team" - are now among the 10 largest shareholders of some ChiNext firms, Gao Ting, head of China Strategy at UBS Securities, wrote in a report.

The "national team's" style of operation might not change and it might continue increasing its exposure to banking stocks while decreasing its exposure to non-financials, Gao said.

Shares of listed firms, including Financial Street Holdings in which Anbang Insurance Group holds major stakes, were largely stable after Anbang said it had no plans to sell its overseas assets.

In Hong Kong, the Hang Seng index added 0.7 per cent, to 27,524.07 points, pushing to its highest levels since June 2015.

Financials led the advance, as investors poured into dual-listed big-cap insurers including New China Life Insurance, which rose 4.3 per cent by midday.

China's online gaming giant Tencent Holdings added 1 per cent to a record high.

The strong rally in Hong Kong could be attributed in part to strong southbound inflows via the stock connects linking Hong Kong and the mainland, traders say.

Data showed mainland investors in July spent a total of 42.3 billion yuan (S$8.54 billion), the largest monthly amount so far in 2017, buying Hong Kong stocks via the stock connects linking Shanghai, Shenzhen and Hong Kong.