Hang Seng, China stocks riding stimulus hopes

Despite softer-than-expected macro-economic data, investors still appear bullish on Chinese stocks, willing them higher.

Hong Kong
Source: Bloomberg

The Hang Seng Index is at a six-year high and looks on track to breaking new ground. China H-Shares also looks set to extend its positive streak this week, after gaining 3.47% over the past three days and closing at 11.193.89 points on Wednesday.

Over the past week, some China economic data fell short of expectations, but this does not appear to have dampened the optimism in Chinese shares.

On a year-on-year basis, we saw industrial production in July grow at a slower pace, 9% versus 9.2% in the prior month. Retail sales growth also dipped a notch to 12.2%, from 12.4%.

Hong Kong HS50 Chart
Click to enlarge


Credit growth also showed some signs of softening, with lending data surprisingly on the downside. M2 money supply came in at 13.5% under the consensus forecast of 14.4% and aggregate financing was also disappointing at 273.1 billion yuan, a fraction of the market expectation of 1.5 trillion yuan.

The headline numbers prompted an initial sell off in the AUD/JPY over concerns that growth momentum could be slowing down. The currency pair, however, did retrace back to its uptrend within the hour.

With investors shrugging off these soft data points, it seems they are optimistic that Chinese policy makers could be providing targeted stimulus measures to support struggling sectors.

On a fundamental basis, Chinese stocks do look relatively cheap compared to its counterparts. The Hang Seng Index is trading at a current P/E of 11, while China H-Shares are at a current P/E of 9.2.

In contrast to the current P/E ratios of S&P 500at 17.6, the ASX at 19.2, and the Nikkei at 20.

The Hang Seng has been testing its 25,000 point resistance level in recent days. This means conservative traders could watch out for the index to retrace back to its next support level at 24,800 for a better entry, or wait for a clear breakthrough above 25,000.



The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.