Hong Kong stocks extend gain from six-week high as China manufacturing loss boosts policy easing bets

  • Stocks added to recent jump to a six-week high after an official report shows Chinese manufacturing contracted for a third month in May
  • Analysts keep cutting their price targets for Chinese tech leaders including Alibaba, JD.com and SMIC after the latest earnings reports

Hong Kong stocks extended gains from a six-week high on prospects for more policy easing after a government report showed manufacturing in China contracted for a third month due to its strict zero-Covid measures.

The Hang Seng Index rose 0.4 per cent to 21,215.26 at the local noon trading break, heading for the highest level since April 14. The Hang Seng Tech Index added 1.8 per cent, while the Shanghai Composite Index gained 0.8 per cent.

Country Garden Services, Meituan and AAC Technologies led gainers, rallying more than 3 per cent. CK Asset Holdings and China Overseas Land and Investment lost at least 2 per cent, ranking among the worst performers.

The official Purchasing Managers’ Index of manufacturing rose to 49.6 this month from 47.4 in April, China’s statistics bureau said. The recovery failed to surpass 50, a level that indicates an expansion in output. The non-manufacturing gauge, which measures activity in the construction and services sectors, rose 47.8 from 41.9.

“The fallout of the pandemic is not over yet and the economy is still in a grave situation since the second quarter of 2020,” said Bruce Pang, a strategist at China Renaissance Holdings in Hong Kong. “More policies will be needed to stabilise growth and boost employment.”

The latest data reflects the fallout from lockdowns in 40-odd cities that forced producers to shut factories while supply chains were upended. While Beijing has cut lending rates among supportive measures, some economists said it may not be enough to prevent an economic contraction this quarter.

Still, China appears to be winning its battle against the Omicron variant as new daily cases fell below 100 nationwide for the first time since March on Monday. Shanghai, the epicentre of the latest resurgence, will reopen the public transport network and allow ride-hailing services on June 1 as Covid-19 cases fell for a 10th straight day.

Residents will be allowed to leave community compounds after more than two months of isolation, among the 50-point plans the Shanghai government unveiled on Sunday to start repairing its economy.

Traders are also keeping a close watch on corporate earnings. Meituan, Sino Biopharmaceutical and Link Reit are among the members on the Hang Seng Index that are due to release quarterly reports this week. Real estate platform operator KE Holdings, also known as Beike, reports later Tuesday.

About 89 per cent of all Chinese onshore and offshore firms have reported their earnings for the March quarter through May 28, Goldman Sachs said. Earnings rose an average of 2 per cent, trailing consensus estimates of 8 per cent for MSCI China Index, the US bank said.

Author: Zhang Shidong, SCMP

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