The increase in oil prices had a net positive impact on equities, although the main impetus for buying came from a stronger than expected reading for the official PMI manufacturing index.
Oil prices rose sharply following the OPEC deal to curb production levels and this had an important impact in boosting equity markets. The developments were not all positive, however, as share prices in US non-energy companies declined on Wednesday.
The official mainland PMI index was stronger than expected with an increase to the highest level for over 2 years at 51.7 for November from 51.2 previously, which underpinned sentiment surrounding the near-term outlook. The non-manufacturing index also strengthened to 54.7 from 54.0 previously, which underpinned sentiment.
In contrast, there was a decline in the Caixin index for the month to 50.9 from 51.2, which created an element of caution, especially with a further decline in employment and slowdown in the growth rate in orders.
The People’s Bank of China (PBOC) circulated new rules for companies, which make yuan-denominated loans to overseas entities with the measures aimed at curbing capital outflows from China. Efforts to curb capital outflows will tend to have a positive short-term impact on equities and the yuan was also fixed slightly stronger on Thursday, but underlying concerns will persist.
After opening little changed, the Shenzhen index moved higher during the morning session with highs just below 2,120 before some consolidation into the session break. There was a late push higher in the market, which ended at session highs.
Overall, the index gained 12.78 points and 0.61% at 2,119.69, although volumes were disappointing at the lowest level for a month.
Dollar and energy trends will continue to have an important short-term impact with the underlying yuan developments also having an important influence.
Shenzhen Composite Daily Chart