China Stocks Rebound With Biggest Gain Since 2016, Yuan Climbs

(Bloomberg) -- Chinese large cap stocks climbed the most in two years, bouncing back from a bruising run of losses in the lead up to the imposition of U.S. tariffs last Friday. The yuan also rose after retreating for four weeks straight.

• The Shanghai Composite Index jumped 2.5 percent, the most since May 2016, following seven weekly declines in a row
• The SSE 50 Index of the largest mainland-listed stocks climbed 2.9 percent, its biggest gain since August 2016; the CSI 300 gauge added 2.8 percent, also the most since August 2016
• The Hang Seng Index advanced 1.3 percent in Hong Kong to the highest close this month
• The yuan, one of the weakest currencies against the dollar over the past month, rose 0.5 percent, in line for its biggest increase against the greenback since April 10

“Market sentiment improved on a temporary relief of concerns on the China-U.S. trade spat,” said Tommy Xie, economist at Oversea-Chinese Banking Corp. “The trade war didn’t worsen over the weekend and investors are expecting a relatively quiet week ahead on the trade front as Trump will be tied up with his Europe visit.”

China’s Finance Ministry on Friday responded to Washington’s imposition of tariffs, saying the U.S. had ignited the largest trade war in history and accusing the Trump administration of bullying. It also said China would continue to deepen reform, open up its markets and create a “favorable business environment for companies from all over the world operating in China.”

Deustche Bank said that China’s “rational and refrained” remarks were a positive gesture. “The trade war is far from over but a major downside risk -- China punishing U.S. firms doing business in China -- has become less likely,” economists led by Zhiwei Zhang wrote in a note.

A Tough Year

Chinese stocks are still among the world’s worst performers this year. In addition to the trade war threat, investors have been troubled by a domestic deleveraging campaign weighing on liquidity, signs of an economic slowdown, and a weaker currency. The Shanghai index is in a bear market after dropping more than 20 percent from its January high.

“There’s room for a technical rebound after the selloff in past few weeks, while regulators’ positive comments on A shares showing value also helped,” said Shen Zhengyang, Shanghai-based strategist with Northeast Securities Co.

The Shanghai Stock Exchange said in a statement Sunday that valuations of companies listed on the exchange and big-cap blue chips are at reasonable or even relatively low levels when compared with peers in major economies. Value is emerging after recent declines, it said.

China International Capital Corp. said there’s medium-to-long term opportunities in A shares as valuations and sentiment have hit the bottom, while brokerages including Citic Securities Co. and Essence Securities Co. now expect the market to rebound. Credit Suisse Group AG remains cautious, forecasting further losses over the coming weeks. It added that the downside would be limited by solid fundamentals.

Currency Moves

Data on Monday showed China’s foreign-exchange reserves last month rose for the first time since March, reaching $3.112 trillion as the yuan slid 3.3 percent. The yuan strengthened to 6.6170 versus the dollar Monday, while the Bloomberg dollar index fell 0.3 percent following a 0.4 percent loss Friday.

Ken Cheung, senior Asian currency strategist at Mizuho Bank Ltd., said trade tension and softer Chinese economic growth momentum should cap the yuan’s strength, though the central bank’s pledge to maintain stability is likely to keep it supported at the key 6.7 level, a line in the sand differentiating between bullish and bearish expectations.

Smartphone maker Xiaomi Corp. tumbled as much as 5.9 percent on its debut in Hong Kong, hitting as low as HK$16 versus its HK$17 initial public offering price. The shares pared losses to 1.2 percent at the close.

Here’s a summary of some other moves:

• Chinese insurers and banks jump after Caixin reported that implementation of new regulations on wealth management products may be later than expected due to recent market volatility
  • New China Life among top gainers on Hang Seng China Enterprises Index, rising 4%; China Construction Bank and ICBC add 5.4% and 4.5%, respectively, in Shanghai
• Hangzhou Hikvision surges 7.5%, most since January 2016, biggest contributor to gains on the Shenzhen Composite Index, which adds 2.5%
• Developers rise in Hong Kong and the mainland, as investors snap up some of the worst performers in recent rout; China Resources Land adds 2.2% in Hong Kong; Poly Real Estate +5.4% in Shanghai
• Tencent advances 2.4% after announcing plan to spin off online music business for U.S. listing
• Macau casino stocks advance, with Galaxy Entertainment up 5.1%, leading gains on Hang Seng Index; Sands China adds 4.3%

--With assistance from Ludi Wang.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Tian Chen in Hong Kong at tchen259@bloomberg.net;Emma Dai in Hong Kong at edai8@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies, Kana Nishizawa

©2018 Bloomberg L.P.

With assistance from Editorial Board