Market Close Jul 22

Sino-US tensions cool rally, China outperforms on reforms

China presses on with economic and financial reforms; US stimulus size uncertain; US-China tensions resurface after order to shut consulate

Sino-US tensions cool rally, China outperforms on reforms
The Shanghai index was revised to include STAR Market-listed tech companies, eliminating high-risk firms and delaying inclusion of newly listed stocks. China also officially launched the STAR 50 Index for top-listed firms, as the STAR Market completed one year of its existence. File photo of the STAR market launch by AFP.

(ATF) Hong Kong: Investors across Asia were rattled by rising US-China tensions but mainland Chinese stocks, some of the world’s best performing this year, advanced as Beijing pressed on with reforms with the Shanghai index revised on Wednesday for the first time in 30 years.

Japan’s Nikkei 225 slid 0.58%, Australia’s S&P ASX 200 dropped 1.32% and Hong Kong’s Hang Seng index tumbled 2.25%. But China’s CSI300 added 0.5% amid an affirmation of support to the world’s second biggest economy.

Comments made at an entrepreneurs' symposium on Tuesday reflected the top leadership's pivot to the domestic consumer market and accelerating the economy's opening up to retain its supply chains and promote tech localisation, Morgan Stanley said.

“China will adopt three initiatives to mitigate the secular challenges in a post-Covid-19 'slowbalization' world: fast-tracked Urbanisation 2.0, deepening economic opening-up and tech localisation to retain supply chains, and continued financial market reforms to attract capital inflows,” Morgan Stanley analysts said in a note.

“In particular, we see a structural trend of consumption re-shoring due to reduced international travels post-Covid-19, and accelerated government initiatives of promoting a domestic economic cycle, such as buildup of Hainan duty-free island. This could lift domestic consumption by about US$100 billion (or 1-2ppts) per year in 2021-23, in our view, helping attract more multinational corporations to adopt an 'in China, for China' strategy.”

Shanghai market reforms

The Shanghai index was revised to include STAR Market-listed tech companies, eliminating high-risk firms and delaying inclusion of newly listed stocks. China also officially launched the STAR 50 Index for top-listed firms, as the STAR Market completed one year of its existence.

Still the broad market has been spooked by heightened US-China tensions as Washington asked the Chinese consulate in Houston to shut down in three days, citing a need to protect American intellectual property and information.

Investors are also nervous over the fate of a stimulus package in the US where the Republicans and Democrats are struggling to reach an agreement.

“Whilst the Republicans are supporting another $1-trillion package, the Democrats are supporting a significantly larger $3-trillion stimulus bill. With still considerable distance between the two sides an agreement still looks to be some time off,” said Fiona Cincotta, a financial market analyst at City Index.

“When an agreement is within reaching distance, we can expect to see the markets run on the stimulus high. We are not there yet.”

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Foreign Exchange: US orders China's Houston consulate shut, yuan shrugs

Asia Stocks

# Japan’s Nikkei 225 slid 0.58%

# Australia’s S&P ASX 200 dropped 1.32% 

# Hong Kong’s Hang Seng index tumbled 2.25%

# China’s CSI300 added 0.5%

# The MSCI Asia Pacific index slipped 0.77%.

Stock of the day 

Chinese property developer Binjiang Service rose as much as 19.3% after it said it expected net profit to rise 90% in the first half versus a year ago. It said the increase in consolidated net profit was mainly due to the increase in projects under management and gross floor area of properties under the management of the Group and increases in revenue of value-added services for property owners and non-property owners.