Financial, media and biomedical sectors pave way for strong day on stock market

Investors were happy as major indexes on China’s stock market shot up on Tuesday amid optimistic trading sentiment.

The benchmark Shanghai Composite Index increased 1.77 percent to close at 3,451.94 thanks to strong showings by the financial, media and biomedical sectors.

The smaller Shenzhen Component Index gained 1.90 percent to finish at 13,930.37, while the ChiNext Index surged 2.53 percent to end its trading day at 2,698.44.

More than 16 billion yuan (US$2.43 billion) of northbound foreign capital flowed into the A-share market via China’s stock connect initiatives. Combined turnover on the two bourses came to 864.9 billion yuan, compared with 950.7 billion yuan in the previous session.

Shares of Guosheng Financial Holding rose to the daily maximum of 10 percent to close at 13.62 yuan.

The Caixin manufacturing PMI, which surveys small and medium-size enterprises and export-oriented companies located in eastern coastal regions, jumped to a stronger-than-expected 54.9 in November from 53.6 in October, its highest reading since December 2010.

The improvement, in line with November’s increase in official PMIs released yesterday, can be credited to China’s successful containment of COVID-19, the relaxation of social distancing requirements, exceptionally strong exports of personal protective equipment and work-from-home electronic products, the release of pent-up demand following the worst flooding in decades and fiscal stimulus via credit expansion, according to Nomura’s global markets research.

A common denominator of the recent bond defaults involving Chinese companies with government links, such as car maker Brilliant Auto, chip manufacturer Tsinghua Unigroup and Yongcheng Coal, is financial stress from unprofitable ventures, ANZ noted.

It expects more corporate defaults because 80 percent of the 575 state-owned enterprises deemed problematic by the People’s Bank of China face liquidity issues.

However, the recent defaults are unlikely to lead to a sub-prime crisis like the one in the United States more than a decade ago.

Chinese authorities have a good track record managing financial stress, and the central government’s main goal is to prevent systemic risks, according to ANZ.