SHANGHAI: China stocks were steady on Thursday morning, as demand was hit by a possible U.S. interest rate hike later this month and concerns liquidity could tighten as Beijing’s steps up its fight against leverage. But Hong Kong shares rebounded, joining the regional rally, after Wall Street powered to record highs as investors cheered President Donald Trumps’ measured tone in his first speech to Congress.
China’s CSI300 index <.CSI300> dipped 0.1 percent, to 3,454.42 points by the lunch break, while the Shanghai Composite Index <.SSEC> was unchanged at 3,248.02 points. CSI300, the blue-chip index, has climbed roughly 20 percent over the past year on signs of economic recovery, supported by Beijing’s fiscal stimulus and efforts to shut down “zombie” companies. But the rally has tapered off in over the last few months, suggesting further gains could be limited. “The recent rangebound trading pattern reflects surging market divergence over the market’s direction,” said Yang Hai, strategist at Haiyuan Securities. If the U.S. raises rates again this month, it could trigger fresh capital outflows and hurt domestic liquidity, which is already under pressure from Beijing’s “deleveraging” campaign, Yang said. Indeed, Guo Shuqing, China’s newly-appointed banking regulator said on Thursday that risk prevention in the sector will be a more prominent policy focus in 2017, signalling tougher crackdown in areas such as shadow banking. Most sectors fell, but metal shares <.CSISNMIM> bucked the trend, rising 0.8 percent, on news that China has ordered steel and aluminium producers in 28 cities to slash output during winter as Beijing intensifies its war on smog.
In Hong Kong, the Hang Seng index <.HSI> added 0.4 percent, to 23,862.31 points, while the Hong Kong China Enterprises Index <.HSCE> gained 0.5 percent, to 10,339.10. Overnight on Wall Street, the Dow Jones Industrial Average <.DJI> blasted through the 21,000-point mark for the first time, as investors embraced Trump’s less protectionist tone in his speech.
