The rebound in the mainland Chinese share markets on Tuesday has brought back some cheer to investors. Photo: Xinhua
The rebound in the mainland Chinese market on Tuesday was driven by brokerage and insurance stocks after the state-owned pension fund said late on Monday it would aim to invest 30 per cent of its assets in the domestic share market, a move that could provide a 1.3 trillion yuan boost for equities.
The key Shanghai Composite Index dropped as much as 5.1 per cent in the morning, before finishing up 5.53 per cent.
Nearly 300 stocks rose their daily limit of 10 per cent, with the gains of more than 1,300 stocks exceeding 5 per cent.
Leading brokerage Guotai Junan Securities gave the market a boost when it said it would lower margin requirements for certain blue chips.
All 24 brokerages and four insurance stocks in Shanghai rose more than 6 per cent. Changjiang Securities rose 10 per cent to 13.95 yuan, while Southwest Securities added 10 per cent to 19.65 yuan.
China Life Insurance rose 8.15 per cent to close at 31.32 yuan, while Ping An Insurance jumped 7.1 per cent to 81.94 yuan.
"The strong performance of the brokerage sector is likely directly related to the volatility in the market," said Gerry Alfonso, a director at Shenwan Hongyuan Securities. "If an investor has the view that the volatility is going to continue, then he might consider buying the stocks of brokers as they are likely to have larger trading volumes.
"This seems to be the logic applied by some investors [on Tuesday]."
Meanwhile, the Hang Seng Index rose 1.09 per cent to 26,250.03 points, with mainland financial counters leading the gainers.
Guotai Junan added 4.6 per cent to HK$5.05 while China Construction Bank gained 2.2 per cent to HK$7.08.
Data from the Shanghai-Hong Kong Stock Connect showed more international investors bought in Shanghai through Hong Kong than the number of mainland Chinese buying in Hong Kong.
Average daily northbound turnover was about 5 billion yuan in January and February, but rose to 6.25 billion yuan in March and 8.62 billion yuan in April. It fell to 8.36 billion yuan in May but soared to 11.36 billion yuan last month.
The most widely traded shares in mainland China included Ping An Insurance, China Merchants Bank, Kweichow Moutai and Daiqin Railway.
Southbound trading was more volatile, with daily turnover averaging HK$1.54 billion in January, HK$786 million in February and HK$1.62 billion in March before jumping to HK$12.37 billion in April when Beijing relaxed rules to allow mainland Chinese mutual funds to invest in Hong Kong through the scheme. Turnover fell back to HK$5.44 billion in May and HK$4.36 billion last month.
The most traded Hong Kong stocks among mainlanders included Hanergy Thin Film Power Group, rail firm CRRC Corp, CGN Power and Evergrande Real Estate Group.
The average daily turnover of northbound trading in the first half stood at about 7.35 billion yuan, compared with the southbound average of HK$4.35 billion.
Bank of America Merrill Lynch said sentiment towards mainland Chinese stocks remained positive and it expected more easing measures as Beijing's monetary policy was still "exceptionally tight", despite recent cuts in interest rates and reserve requirement ratios.
"Risk-Love, our own sentiment indicator for China's equity markets, is still euphoric, despite recent declines," the bank's strategists said in a note on Tuesday.
This article appeared in the South China Morning Post print edition as Brokerage and insurance stocks power rebound
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