HK share rally on Shenzhen link

Another bout of Shenzhen-Hong Kong stock connect speculation pushed the Hang Seng Index up nearly 500 points in less than an hour. 

Stock traders work at the Hong Kong Stock Exchange in Hong Kong, China
Source: Bloomberg

There were rumours that the Hong Kong Stock Exchange may announce details on the trading link this weekend.

This is certainly enough to galvanise traders into action where the HSI surged over one-week highs of 27,928.

Unsurprisingly, H-shares were the beneficiary of the rumour, the Hang Seng China Enterprise Index took a peek above 14,000 points.

Hong Kong Exchange and Clearing Ltd (HKEx) jumped 4.6% or up HKD 13 per share.

However, as rumours go, the momentum dropped off with the Index paring gains, as HKEx commented that there is no arrangement to announce the stock connect today. Nonetheless, telecommunications and industrial counters led the gains, helped by strong gains in China Mobile.

The telecom firm announced its cost reduction programme today which is expected to help improve profit margins.

Meanwhile, Chinese equities continued to trade lower with FTSE China A50 and CSI 300 closing down 2.1% and 1.8% respectively. The tumultuous trade seen last week seemed to be tempered this week with the Shanghai Composite managing a 2.4% rise.

This suggests that the SHCOMP is heading into consolidation. We continue to see the Shenzhen Composite (SZCOMP) outperforming its Shanghai counterpart, registering a 7.5% gain this week, and reaching a historic high of 2471.4 on Thursday, helped by rising expectations of the Shenzhen-Hong Kong trading link.

In the currency markets, we have seen some recovery in the US dollar, which placed major currencies and Asian units under pressure today. The euro is back below $1.14.

Ahead of the US open

Despite a relatively lacklustre session in Asia, European markets were modestly higher as investors were cheered by ECB President Draghi’s comments. His remarks allayed concerns that the ECB QE will be yanked off earlier than planned.

This should also support sentiments as we head into the US open. We are expecting a positive start for US equities with S&P 500 likely to clock another record high. Our calls are S&P 2124.6 +3, DJIA 18271 +19.

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