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Economy

Mainland, HK equities rally

By Zhang Shidong and Chua Kong Ho (China Daily)
Updated: 2010-06-22 08:07
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SHANGHAI - Mainland stocks rallied the most in almost a month, led by banks, airlines and property companies, on the prospect that a stronger yuan will tame inflation and reduce the need for interest-rate increases.

"An appreciation in the yuan will reduce inflationary pressures and benefit consumption by increasing purchasing power," said Shi Bo, general manager of Shanghai Elegant Investment Co, which oversees about $278 million in assets, including a fund that was ranked first among the 678 China-based funds tracked by Bloomberg. "It's positive for stocks."

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The Shanghai Composite Index gained 72.99, or 2.9 percent, to 2586.21 at the close, the biggest gain since May 24. The CSI 300 Index rose 3.1 percent to 2780.66.

Some brokerages and fund managers are getting more bullish on China's stocks.

China's move to end the yuan's fixed rate to the dollar is a "bullish catalyst" for the nation's yuan-denominated and Hong Kong-traded stocks, Morgan Stanley said.

The brokerage upgraded banks and property stocks to "overweight", saying yuan appreciation in the second half will help regulators manage inflation and reduce the need for further tightening.

China's Se Shang Property Index advanced 3.8 percent on Monday. The measure has plunged 26 percent this year, the worst performer among the five industry groups in the Shanghai Composite Index, after the government ordered banks to hold more of their assets in reserve, set a lower lending target for 2010, and drained liquidity through bill sales.

China's airlines are major beneficiaries of a gain in the yuan given their foreign-currency debt, while textile producers will be hurt as profit margins narrow, according to JPMorgan Chase & Co's Jing Ulrich.

Hang Seng gains

Hong Kong stocks rose for a ninth day, the longest winning streak in four years, after China allowed the yuan to appreciate against the US dollar, making the city's assets more affordable to mainland investors.

Hang Seng Index jumped 3.1 percent to 20912.18, the highest close since April 30. The gauge has increased 7.9 percent in the past nine days, the longest run of gains since the 10 trading days to Feb 27, 2006.

Hang Seng China Enterprises Index surged 4.4 percent to 12134.42, the largest gain since June 10 last year.

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