China’s ‘nifty 50’ blue chips hit 20-month high, small-caps retreat on oversupply concerns

* SSEC down 0.2 pct, CSI300 up 0.5 pct, HSI 1.1 pct

* China’s “nifty 50” index highest since Nov. 2015

* Sunac China shares jump after $9.3 bln deal with Dalian
Wanda

SHANGHAI, July 11 (Reuters) – China stocks were mixed on
Tuesday, with blue-chips firming as investors chased companies
with solid fundamentals while small-caps extended a fall on
expectations more equity issuance would soften valuations.

The CSI300 index rose 0.5 percent, to 3,670.57
points at the end of the morning session, while the Shanghai
Composite Index lost 0.2 percent, to 3,206.96 points.

An index tracking 50 blue-chips in Shanghai, dubbed
China’s “nifty 50” index, rose 0.7 percent to a 20-month high as
investors continued to chase blue-chips with solid fundamentals.
This follows MSCI’s decision to include China’s 222 big-caps in
its key index.

At the smaller end of town, however, the tech-heavy start-up
board index ChiNext lost 0.6 percent following a 1.8
percent slump on Monday, with six small-cap stocks tumbling the
10 percent trading limit. Small-caps have weakened after the
securities regulator approved more initial public offerings over
the weekend.

China’s central bank resumed open market operations to
inject 40 billion yuan ($5.88 billion) into money market on
Tuesday, after abstaining from open market operations during the
previous 12 sessions.

The tight liquidity conditions will last for a relatively
long time, as the central bank’s current moves to maintain
stability in the market were only meant to prevent financial
risks amid Beijing’s concerted campaign to deleverage, Bohai
securities analyst Song Yiwei wrote in a report.

Financial and consumer stocks led
the advance in the morning, while material firms
took a breather after recent strong gains and a weak dollar.

Investors are likely to be wary of stocks trading at high
levels with a rotation into big-caps extending into other
sectors, including cyclical shares, which could mean rising
risks amid tight liquidity in the market, Song wrote.

Hong Kong stocks extended a rally, aided by strong gains in
financial firms. The Hang Seng index added 1.1 percent,
to 25,786.35 points.

The Hong Kong China Enterprises Index gained 1.4
percent, to 10,362.05.

An index tracking major financial plays rose 1.6
percent in the morning.

Shares of Sunac China Holdings Ltd surged nearly 7
percent on resumption of trade on Tuesday, a day after the
acquisitive developer agreed to buy tourism projects and hotels
from Chinese property giant Dalian Wanda Group for $9.3 billion.

($1 = 6.8040 Chinese yuan)

(Reporting by Luoyan Liu and Andrew Galbraith; Editing by Sam
Holmes)

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