China Stocks Have Best Start Since 2015 as Central Bank Adds Cash

(Bloomberg) -- Chinese shares rose to the highest since February 2018 after an earlier-than-expected cash injection from the central bank spurred expectations of more support.

The CSI 300 Index advanced 1.4% at the close, with nearly seven stocks rising for every one that fell. Thursday’s rally was especially notable because Kweichow Moutai Co. -- one of the largest stocks in China -- dropped 4.5% after missing profit estimates. The Shanghai Composite Index climbed 1.2% to 3,085.20, ending the day above a technical level at 3,050 points that has stopped rallies in recent months.

China Stocks Have Best Start Since 2015 as Central Bank Adds Cash

The rally in Chinese equities has gathered strength as optimism grows that trade ties with the U.S. will improve and the government will provide more support to the economy. The CSI 300 jumped 7% in December, its best gain in 10 months. China’s manufacturers continued to expand output last month, providing evidence of some stabilization, although the outlook for the private sector is less certain.

“The mood today is much buoyed by the RRR cut, which came slightly earlier than expected and comes with further expectations that targeted cuts are on the way,” said Wu Xuan, chief strategist at Tebon Fund. “Moutai has not spoiled things today because the market has found a new sense of direction.”

The People’s Bank of China said Wednesday it will cut the amount of cash lenders need to hold as reserves from Jan. 6, unleashing about 800 billion yuan ($115 billion) in funds. While the cut was not a surprise, the early announcement suggests policy makers may add more liquidity in the next few weeks to match cash demands ahead of the Lunar New Year.

Moutai said its 2019 revenue and earnings will both rise about 15%. The world’s most profitable distiller also set a sales growth target of 10% for 2020, a more modest goal than last year.

Stocks in Hong Kong also kicked off 2020 with a gain, as the Hang Seng Index rose 1.3% to its highest close since July. The advance came after the former British colony rang in the new year with tear gas, fires, vandalism and roadblocks in busy downtown areas. Protesters vowed to continue their fight for more democracy and less Chinese control.

Still, investors are optimistic that China and the U.S. can settle their trade differences, with President Donald Trump saying he will sign the first phase of a deal on Jan. 15. The date has yet to be confirmed by the Chinese side.

Jefferies and Citigroup Inc. said they remain bullish on China’s property sector for this year. Improved liquidity from the RRR cut means lower borrowing costs to developers and home buyers, Jefferies analysts including Stephen Cheung wrote in a note. Chinese developers advanced, with Shanghai Wanye Enterprises Co. and Beijing Capital Development Co. rising at least 3.3%.

©2020 Bloomberg L.P.

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