Shanghai Composite Index: China Stocks Resume Upward Move

The Shanghai Composite Index kicked off the week with a 12.62-point gain, or 0.39 percent, to close at 3,250.60. The last week has been a good run for the biggest benchmark of Chinese equities, with the SSE Composite Index logging a gain of 2.33 percent over the past week. The Index is now in positive territory using all the usual trailing time periods: Up 2.05 percent over the past month, 3.87 percent over three months, 4.74 percent year to date, and up 7.78 percent over the trailing twelve.

Last week saw three days of gains in a row on the Shanghai Composite, followed by a drop of 0.21 percent on the 21st as investors took some gains off the table. Industrial companies tended to do well, and led the market upward most of last week, while financial companies took the biggest haircuts.

Other Asia stock markets were mixed today: The Nikkei 225 took a 0.62 percent hit, and Australian shares were down 0.61 percent, while the Hong Kong Hang Seng Index gained 0.53 percent to reach a new two-year high. The Kospi was relatively flat, gaining just 0.06 percent today. The Nasdaq-like ChiNext Index fell 0.22 percent today.

The Shenzhen Composite gained 0.48 percent today and is up by 3.01 percent over the past week. However, the more tech-heavy rival Chinese index is actually down by 5.81 percent over the year to date, indicating a significant bifurcation in the Chinese market when compared to the Shanghai Composite’s solid 4.74 percent record this year.

China’s Winners & Losers

Today saw a bunch of ten-percent gainers, led by Jianxi Hongdu Aviation Industry Co., then Shanghai Tianchen Co. Ltd., Beijing Homyear Capital Holdings, Yangmei Chemical Co., BEIH Property Co and Henan Zhongyuan Expressway Co., all topping the critical 10 percent mark, at which point exchange officials cease trading in those shares.

Today’s biggest losers were Jiangsu Protruly Vision Technology Group, down 9.89 percent on the day, Ningbo Shanshan Co. was down 6.67 percent, Shenzhen Geoway fell 5.68 percent, and Shandong Bohui Paper Industrial Co. fell 4.99 percent. Inner Mongolia Eerduosi Resources Co. slipped 4.24 percent and Lianing Hongyang Energy Resource Invest Co. Ltd. fell 3.81 percent.

China’s Economy

We saw a resurgence in the second quarter in Chinese outbound merger and acquisition activity, with deal value soaring 148 percent compared to Q1 2017. Total activity for Q2 amounted to 94 deals totaling US$35.9 billion reports the Shanghai Daily, citing Baker McKenzie’s Cross-Border M&A Index.

Inbound M&A activity was also up, with total deal value up 69 percent for the second quarter and 29 percent in deal volume for the 62 deals that went through during Q2. Two-thirds of the inbound investment volume was flowing to the technology sector.

Big things are happening on big ships: China is now the second biggest cruise ship market in the world, with the cruise industry growing at a 40-percent clip ever since Costa Cruises, an Italian company, entered the Chinese market. Last year, over two million people enjoyed cruises on Chinese-ported cruise ships, or left China to go on cruises. Ten Chinese ports logged 996 cruises in 2016. China is on pace to be the biggest cruise market in the world by 2030, projects the Shanghai International Shipping Institute, and should be cracking 8 to 10 million passengers per year. Ctrip, a major Chinese travel booking firm, expects cruise ship numbers to increase by 30 percent by July, on a year-over-year basis.

We did see some bad news in the Chinese car market, with Great Wall Motor shares plummeting after a bad first-half profit report, in which the company reported a profit decline of 49.4 percent. The news sent the stock down 7.1 percent on Monday. The company, listed in Hong Kong, is China’s biggest domestic supplier of SUVs, so we’ll be watching the auto industry for signs of a pullback on the part of the Chinese consumer.

China’s Dealmaking

Reports are that HNA, one of China’s most ravenous companies in the merger & acquisitions market, is now having trouble lining up lenders to fuel its acquisition activity.

China’s Outlook

The International Monetary Fund increased their projection for 2017 economic growth in China to 6.7 percent, reports Xinhua. They also increased their 2018 GDP growth projection to 6.4 percent, an increase of 0.2 percentage points, in the release of their updated World Economic Outlook Report. The update comes just a few days after Chinese authorities reported an unexpectedly robust economic performance in the second quarter.

The IMF reiterates the importance of balancing the economic growth against the need to roll back the highly-leveraged Chinese economy.

Donald is a strategist for economiccalendar.com. He specializes in a fundamental approach while informing traders of relevant economic data. Actively trading since university, Donald trades indices and commodities. He earned his Bachelor's in Finance from Baruch College's Zicklin School of Business in New York City.