China bounces

We continue to see Asia flashing green today, as China led the region. Chinese blue chips gained even more favour on Thursday, with the A50 spiking 7%.

China Skyline
Source: Bloomberg

The Shanghai Composite was stuck below the key 3000 level for much of the session before surging beyond it in the final hour of trading. The index jumped 5% during that period, and closed +5.3%.

Given the magnitude of the up move, it may not be unfathomable to think that the ‘national team’ had propped up the stock markets after  missing in action for a while. Meanwhile, hopes that stamp duty on stock trading will drop led to sharp gains in financial-related stocks, including banks, brokerages, and insurers.

On top of this, you have several things going on for China. Xinhua reported the State Council will be holding a regular policy briefing tomorrow at 10am to answer questions relating to the announcement allowing pension funds to invest up to 30% of net assets in stocks. This also added to the positive sentiments surrounding Chinese equities today.

Separately, Xinhua noted that Goldman Sachs believes the recent selloff in the A shares was overdone and valuations have become cheap, adding that it may be time to hunt for bargains. The investment bank said that investors are now more concerned with the macro trends of Chinese markets, which suggests some counters are looking attractive because of its low price-to-earnings ratio.

After the double slide in the Chinese markets over the past three months, the government may continue to step up positive announcements to bolster confidence. It is worthwhile mentioning that the series of short-term liquidity injection, benchmark interest rate reduction, and the upcoming reserve requirement ratio cuts have helped ease the liquidity crunch.

This was reflected in a drop in the funding costs, with the SHIBOR and one-year interest rate swap sliding to their lowest since last month. Naturally, I will stay cautiously optimistic. For now, it seems the market is responding positively to all of these developments, but it is wise to watch the next few sessions to determine if today’s recovery has legs.

In Singapore, the Straits Times Index continued to rally, riding on the back of US and Chinese stocks’ recovery. The STI reclaimed the 2900 level and was last seen testing the resistance at 2950. As mentioned before, the index tends to track movements in US and China.

Therefore, as long as the markets in the US and China continues to improve in the coming days, we should also see a nice recovery in Singapore. Meanwhile, Olam requested for a trading halt at around 10am SGT as they are preparing to make an announcement. No further details were provided. The stock surged 13.3% to SGD1.91 prior to the halt. Fellow commodity firm Noble soared over 15%, jumping above SGD0.50, possibly on speculation that Olam’s announcement may benefit Noble as well.

European markets carried on the risk-on mood from Asia, with major indices climbing over 2%. Traders will also be on the lookout for any news out from the Jackson Hole symposium, particularly from the Fed.

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