China blue chips power to 18-month high as resource firms rally

SHANGHAI, July 19 (Reuters) – China’s major share indexes
rebounded on Wednesday as investors piled into blue chips after
robust economic growth data and on expectations that Beijing is
stepping up efforts to reform lumbering and inefficient state
companies.

Even badly bruised small caps shrugged off early weakness to
end higher, though traders were not sure if their recent sharp
correction has ended.

The blue-chip CSI300 index rose 1.7 percent to
3,729.75 points, while the Shanghai Composite Index
gained 1.4 percent to 3,230.98.

Start-up board ChiNext ended up 1 percent, but
still hovered near a 2-1/2-year low on fears that regulators
will clamp down further on riskier forms of financing.

The index, long dominated by speculators, plunged 5 percent
on Monday in what media dubbed “Black Monday” after President Xi
Jinping vowed to strengthen control over financial risk.

“Blue-chips are powering ahead but ChiNext is in the abyss.
Such divergent trends will be self-reinforced, and will last for
at least a year,” said Chang Chenwei, trader of a Shanghai-based
hedge fund house.

State-owned firms in particular were advancing on
expectations of further reforms, he added.

Earnings of steel and coal firms, for example, have
benefited from a government drive to shut older, more
inefficient plants and mines. Authorities have also been
orchestrating mergers in the bloated state sector to create
companies which are more competitive.

The latest semi-annual reports from Chinese mutual fund
houses show that institutional investors are increasingly buying
into blue chips, with asset managers targeting market leaders in
sectors such as banking, insurance, home appliances and
automobiles.

Foreign investors are also plowing money into China’s
big-caps, with the CSOP FTSE A50, the biggest
yuan-denominated China-focused exchange-traded fund in Hong
Kong, seeing money inflows recently.

“We believe China big-cap A stocks are still the first stop
for global investors who look to get access in China especially
after MSCI’s decision to include China A shares into its global
index framework starting from 2018,” fund manager CSOP Asset
Management wrote.

Most sectors gained ground. Shares of raw materials
producers far outperformed the broader market with a
3.6 percent gain, after some firms in the sector forecast robust
mid-year earnings growth.

But shares in Suning Commerce Group Co Ltd
tumbled as much as 6 percent, after the Chinese retail giant was
referenced in a state television programme that was broadly
focusing on local firms making risky overseas acquisitions.
(Reporting by Luoyan Liu and John Ruwitch; Editing by Kim
Coghill)


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