Chinese stocks stabilized after a five-day losing streak for the benchmark Shanghai gauge as small-cap shares rebounded and the central bank added funds to the banking system.
The Shanghai Composite Index ended the day 0.2 percent stronger, halting the longest run of declines since August 2015. The ChiNext gauge of mostly small-cap technology companies rallied after plunging in the previous session. A broader measure of equities traded in Shenzhen rebounded from a seven-month low.
China’s shares have been under pressure since the start of December, along with the nation’s bonds, as monetary conditions tightened. While the central bank has since August tried to drive up borrowing costs to stave off asset bubbles, it boosted cash injections Tuesday amid increased demand before the Jan. 27-Feb. 2 Lunar New Year holidays. The People’s Bank of China added a net 270 billion yuan ($39 billion) through open-market operations, the most in a year.
“The PBOC’s liquidity injections indicate that the government wants to stabilize equities ahead of Lunar New Year, helping calm markets today,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. “The yuan’s advance today is also supportive for Chinese stocks.”
The Hang Seng Index added 0.5 percent, while the Hang Seng China Enterprises Index gained 0.4 percent. The onshore yuan strengthened for a second day, adding 0.4 percent.
The Shenzhen Composite dropped as much as 6.1 percent on Monday before paring losses to 3.6 percent at the close. The ChiNext gauge fell in the last eight trading days, dragging its relative-strength index to the lowest level in four years. The measure’s rebound on Tuesday was led by Leshi Internet Information & Technology Corp., which surged by the 10 percent daily limit. Company Chairman Jia Yueting’s LeEco technology empire has secured strategic investments, according to a statement released Friday.
Investors are increasingly taking bearish positions in China’s shares. Speculators in the U.S. have boosted short sales of an exchange-traded fund tracking China’s domestic equity market to a one-year high, while the Shanghai Composite has slumped more than 5 percent since the end of November.
Kevin Smith, the Denver-based founder and chief executive officer of Crescat Capital, has doubled down on wagers against Chinese stocks as the Communist Party steps up measures to shore up the yuan.
“These recent monetary tightening measures point to the increased risk that Chinese officials will trigger the credit crisis first,” said Smith, whose China bets in the global macro fund returned about 3.4 percent last quarter. “It really only increases our conviction that there are opportunities on the equity-side short, particularly if they continue to defend the currency.”
Beijing Sinnet Technology Co. surged by its daily limit in Shenzhen after the company said in a preliminary earnings statement that its 2016 profit jumped by as much as 208% from the previous year Tongling Nonferrous Metals Group Co. fell 1.9% in Shenzhen and Baoshan Iron & Steel Co. lost 1.7% in Shanghai Cheung Kong Property Holdings Ltd. rose 2.2% to lead gains on Hong Kong’s benchmark Cathay Pacific Airways Ltd., Asia’s biggest international airline, climbed 1.7% to its highest level since September.
The carrier said Monday it plans to shorten its fuel-hedging program and revamp its workforce as part of a new business strategy to halt a slide in earnings Standard Chartered Plc shares rose 6.9% in Hong Kong after Goldman Sachs Group Inc raised its price target by 8.2% to HK$66 Landing International Development Ltd. plunged 29% to a record low in Hong Kong after the company said Monday that it would use proceeds of a rights offer to repay loans.
© 2017 Bloomberg L.P