Chinese shares bucked the general downward trend in Asia on Wednesday to close with solid gains, stemming from promises of infrastructure spending and pension fund support. The CSI 300 index of the largest companies in Shanghai and Shenzhen rose all day and closed up 2.9%, finishing at its strongest point of the trading day.
That increase was in contrast to the 0.9% loss for the Topix in Japan, while the chip-driven markets in South Korea (down 1.1%) and Taiwan (down 2.1%) fared worse. There were modest falls for the markets in Southeast Asia, too.
In China, industrials and heavy-industry companies unexpectedly led the way, not normally the most exciting of movers in the momentum-driven Chinese market. That's after Chinese President Xi Jinping stressed the need to strengthen China's infrastructure to an economic planning committee of the Chinese Communist Party.
The oil and gas extractor CNOOC (HK:0883 and SH:600938) shot up the 10.0% limit in Shanghai, where it listed on April 21. CNOOC was delisted from Wall Street last October after it was added to a U.S. Department of Defense sanctions list of companies it believes are owned or controlled by the Chinese military. U.S. investors are barred from investing in those companies. The shares are up 38.7% since listing in Shanghai at C¥10.80.
Several coal-mining and commodities companies also rose fast in Chinese trading on Wednesday, with Yunnan Aluminium (SZ:000807) also up the 10.0% limit. Gold and copper miner Zijin Mining (SH:601899) climbed 6.4% on Wednesday, also benefiting from higher commodities prices, while battery-linked companies such as Ganfeng Lithium (SZ:002460) and Tianqi Lithium (SZ:002466) both were up the 10% limit.
We'll see how long this rally lasts; I have a feeling it will be short-lived. It's notable that the Hong Kong market didn't move today, with the Hang Seng Index ending the day flat on a very narrow 0.06% rise. CNOOC shares, also listed in Hong Kong, rose only 6.7% here. Likewise, Zijin Mining had a more muted move in Hong Kong, up 5.7%, indicating that mainland Chinese policy changes are driving the markets in Shanghai and Shenzhen.
We're seeing Chinese policymakers make all sorts of noise designed to support markets and the economy, but they'll need to translate into action.
On the pension front...
The China Securities Regulatory Commission (CSRC), the equivalent of the U.S. Securities and Exchange Commission, issued a statement after Tuesday's close encouraging fund managers to develop products for private pensions. It wants to "increase the proportion of medium- and long-term funds," explore products with a lockup period, and promote "value investment," the statement says.
The stock watchdog also wants to encourage the increased use of index funds, ETFs and REITs. Aware that Chinese markets have traditionally been driven by extremely short-term retail investing, the CSRC said fund managers should avoid "style drift" and "high turnover" and instead play the "stabilizer" and "ballast stone" roles for the capital markets. It also wants to encourage Chinese fund managers to "go global," although existing Chinese securities laws and a heavily managed currency make that hard.
China last week announced the formation of the first private pension plan for Chinese citizens, which could prove to be pivotal in the development of the fund management industry. Employees at first can invest up to C¥12,000 (US$1,830) per year in a private plan in a scheme that will roll out first to trial cities for one year and then nationwide, with the ceiling amount due to rise with incomes. At the moment, Chinese retirees live on a modest state pension payout and any savings they can accumulate.
The pension fund money can be invested in wealth management products, mutual funds, insurance and as deposits, although we'll see how expansive those are. The guidelines warn the products should be "relatively lower risk" with a "longer-term investment horizon," neither of which sound like typical characteristics of the volatile Chinese stock market.
Mainland shares have sunk to their lowest levels in two years as investors factor in the economic impact of the lockdown in Shanghai and unfolding battle against COVID-19 in Beijing. You can't read too much into day-by-day COVID counts, but Wednesday's figures from the Chinese authorities show the wave of infection may have peaked in Shanghai and has not yet taken full hold in Beijing.
Shanghai, now in its fifth week of lockdown, is accounting for the vast majority of cases in China. The largest city in the world's most-populous nation logged 13,562 new infections in Wednesday's tally, down from 16,980 on Tuesday and 19,455 on Monday.
Those are the lowest figures for weeks in Shanghai, which was regularly topping 20,000 cases per day since case counts exploded at the start of April. Shanghai entered what was supposed to be a two-stage lockdown on March 28, with half the city conducting mass testing at a time, but the entire city was shut down on April 5. There has been plenty of frustration vented on social media in China, posts that are inevitably censored and taken down.
Beijing has recorded 34 new COVID infections as of Wednesday, up from 33 the day before and 20 on Monday. Wednesday's figures are a high for the capital city since Omicron first took hold in China. However, the numbers have yet to show any kind of exponential trend, so the authorities hope they can nip any outbreak in the bud. Given how infectious Omicron is, there's mounting doubt whether snap lockdowns will really work to contain the variant, which promises as it does the rounds to provoke the need to lock down again and again and yet again.
