Summary:

  • Hang Seng CE soars above 2% to cap the best week in more than a year
  • Chinese equities gain as profits increase
  • FX moves are limited with GBP and CAD in minor gains

What a week for the Chinese stocks it was! Hang Seng China Enterprises Index (CHNComp on xStation5 platform)  soared for the third day in a row and is bound to see the best week since April 2016! Today’s gains were fueled by solid quarterly reports from PetroChina Co. (+4.4%) and China Life (+3.8%) as both companies presented earnings on top of estimates. What is more PetroChina caused a kind of euphoria when it said that all those extra profits will be paid out in dividends. This is all the good news for the market that’s been on the constant rise since the Chinese mini crisis in 2015 an 2016 yet is far off the highs (unlike many Western indices). 

Investors should be on alert though – what is going on in China could be linked to political situation. There will be a major party congress in the Autumn (October or November) one that sees leadership change every 5 years. However, this time it is expected that president Xi will continue to serve for another 5 years and it could be very well that there’s concerted effort to make things look better than they really are. For some reason the PBOC that’s been on the restrictive side as recently as first quarter eased its tone, commercial banks used 80% of their annual credit quotas in the first half of the year and debt-to-equity swaps have been vastly used to prop up struggling industries which in turn helped drive higher demand for commodities. This is obviously just a thesis and we cannot assume for sure that the economy is going to crash after the summit but it’s a possibility that begs consideration. 

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CHNComp continues higher and may aim at an upper limit of the channel. Source: xStation5 

For the CHNComp it’s “so far so good”. The index is well entrenched in the upwards channel and could head towards an upper limit slightly above 11500 pts. 

On the FX front things are calm. The yen has not been moved by the inflation data from Japan that was broadly in line with expectations. Core inflation at 0.1% says a lot about BoJ’s chances of taking inflation towards its goal at 2%. This is calm before the storm though – markets keep their fingers ready ahead of much awaited speeches from Yellen (3pm BST) and Draghi (8pm) in Jackson Hole today.