SHANGHAI: China stocks rose on Monday, with construction and energy stocks taking the lead, as poor Chinese factory activity data reinforced expectations of fresh government stimulus.
The China HSBC PMI index dropped to 48.9 in April, showing that the country’s factories suffered their fastest drop in activity for a year as new orders fell.
Further underscoring the need for more stimulus to shore up faltering growth, the State Information Centre, a top government think tank forecast that China’s economy could slow further to 6.8 percent in the second quarter from a six-year low of 7 percent in the first.
“The economy is still weak. It’s still trending lower,” said Liu Haiying, chief economist at Capital Edge Investment Management Co in Shanghai, who said an interest rate cut this month was “very likely”.
“But since this round of bull run is fuelled by liquidity, not by corporate earnings, I don’t think the rally has come to an end, although there will be increasing fluctuations,” he said, citing risks including fresh regulatory crackdown on speculation.
The CSI300 index rose 0.9 percent, to 4,790.72 points at the end of the morning session, while the Shanghai Composite Index gained 0.9 percent, to 4,479.20 points.
Hong Kong stocks also rose. The Hang Seng index added 0.4 percent, to 28,238.74 points, while the Hong Kong China Enterprises Index gained 0.8 percent, to 14,547.40.
In China, property stocks were up, after signs of recovery in major Chinese cities. The official China Securities Journal reported that the housing market picked up in first-tier cities as sales data improved over the Labour Day holiday.
Infrastructure-related stocks jumped as investors bet the government will boost construction spending while an overseas expansion initiative called “One Belt, One Road” will also increase demand for Chinese industrial products.
But banking stocks underperformed the broader market. The sector is “clearly exposed to a slowdown in the economy,” said Gerry Alfonso, analyst at Shenwan Hongyuan Securities Co.
