China stocks climb on new signs of economic recovery

Chinese stocks rose on Wednesday as signs that the world’s second-biggest economy is recovering from the coronavirus pandemic outweighed concerns of new outbreaks in the US and political upheaval in Hong Kong.

On the first trading day of the third quarter, China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks climbed 1.1 per cent. Elsewhere, Australia’s S&P/ASX 20 rose 0.6 per cent while Japan’s Topix dropped 1.3 per cent and South Korea’s Kospi slipped 0.1 per cent.

Hong Kong’s stock market was closed for a public holiday, a day after Beijing passed a law tightening its grip on the semi-autonomous territory.

The positivity in China’s equity market followed further evidence that the economy is building momentum after largely containing the health crisis. The Caixin manufacturing purchasing managers’ index — a measure of factory activity in China — came in at 51.2 for June, marking its second straight month of growth.

That result “reflected manufacturers’ confidence that there would be a further relaxation of epidemic controls and a normalisation of economic activities”, said Wang Zhe, senior economist at Caixin Insight Group.

Futures trading suggested Wall Street’s S&P 500 and London’s FTSE 100 would both open 0.4 per cent lower when trading begins later in the day.

Overnight, the S&P 500 closed 1.5 per cent higher while the tech-heavy Nasdaq rose 1.9 per cent. That capped off US stocks’ best quarter in more than two decades on the back of a broad rally sparked by hefty central bank support measures and hopes of a powerful economic recovery from the health crisis.

However, a senior medical official said that daily new US coronavirus cases could more than double as western and southern states struggle to get outbreaks under control.

Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, warned the US Senate on Tuesday that the country was “going in the wrong direction” on the pandemic.

“We’re now having 40-plus thousand new cases a day. I would not be surprised if we go up to 100,000 a day if this does not turn around,” Dr Fauci told a Senate hearing. “I am very concerned because it could get very bad.”

In addition to fears over the spread of Covid-19, geopolitical tensions have also come to the fore. Beijing on Tuesday drew swift condemnation from the US, Europe and Australia after it passed a controversial security law for Hong Kong, an important global finance hub.

Michael Every, global strategist at Rabobank, said equity markets may have underestimated risks from developments in Hong Kong.

“The view among the establishment in Hong Kong, and in markets, is that the US is a paper tiger and there won’t be any” substantial retaliation to the law. But “if China and markets are wrong and the US does have the stomach for real action on Hong Kong . . . all the central bank action in the world is not going to suppress that particular bout of volatility.” 

The falls in Japanese shares came after a central bank survey showed manufacturing sentiment fell to its lowest level since 2009 in June.

The yen, often viewed by investors as a haven asset during times of uncertainty, added 0.2 per cent to ¥107.69 per US dollar.

With coronavirus infections outside of Tokyo remaining low, however, Japan’s “economy should bounce back in the second half of the year”, said Tom Learmouth, an economist at Capital Economics.

Oil prices rose, with West Texas Intermediate, the US benchmark, gaining 1 per cent to $39.66 per barrel. Brent, the international marker, was 0.8 per cent higher at $41.62 per barrel.

Crude was boosted by a bigger than expected drawdown in US inventories, which could suggest that demand is rising as the economy begins to recover.