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China shares extend advance as Li talks up economy

Hong Kong - Chinese stocks traded in Hong Kong extended gains from a one-month high as policy makers talked up the nation’s economic outlook and global markets rallied on stimulus bets.

The Hang Seng China Enterprises Index rose 0.8%, with financial and energy companies in the lead, as equities rallied around the region. China Petroleum & Chemical climbed to the highest level since October following an advance in oil prices.

Bestway Marine & Energy Technology, which supplies equipment to China’s navy, jumped in mainland trading after an international tribunal rejected China’s claim over much of the South China Sea.

Chinese equities have risen for three straight days amid speculation the nation’s leaders are taking steps to support investor sentiment, with Premier Li Keqiang cited as saying Monday that the nation maintained stable growth in the second quarter and that consumer prices are generally stable.

The country’s pension funds, which have about 2 trillion yuan ($300 billion) for investment, are preparing to deploy some of their holdings in securities including equities in the second half.

“State leaders have expressed confidence in the second quarter’s economic data, boosting market sentiment,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “The market will likely climb slowly in the short term as liquidity remains sufficient.”

Slowing exports

Data due later Wednesday will probably reflect a third monthly decline in exports, while figures set to be released Friday are forecast to show that the world’s second-largest economy expanded 6.6 percent in the three months to June 30, the slowest pace since 2009, according to separate Bloomberg surveys. State-backed funds may be shoring up stocks before the GDP data, according to Geo Securities.

Local stocks received a boost also from a regional rally, with global markets regaining the almost $4trn in value that was lost in the days following Britain’s June 23 vote to leave the European Union.

Economists expect the Bank of England to ease policy this week, while Japanese Prime Minister Shinzo Abe said he would order up more fiscal stimulus. Traders are pricing in less than 34% odds of the Federal Reserve raising interest rates this year, even after last week’s better-than-forecast US payrolls data.

Wide gains

The Hang Seng China Enterprises Index was at 8 927.32 as of 07:25, while the Hang Seng Index gained 0.6%. The Shanghai gauge climbed 0.4%, after staging a late rally on Tuesday amid speculation of intervention in both the share and currency markets.

China Petroleum, also known as Sinopec, climbed 1.9% in Hong Kong and China Oilfield Services gained 1.6% after US crude futures jumped 4.6% on Tuesday. Oil prices fell on Wednesday after US industry data showed the nation’s crude stockpiles increased, adding to concerns about oversupply.

China Construction Bank and China Citic Bank, whose H shares offer a dividend yield of at least 5%, added 1.2% or more. Both stocks are valued at less than 5.1 times their reported earnings.

“Large caps with low valuations and high dividends are getting popular, as investors seek to deploy their capital amid ample liquidity,” said Hengsheng’s Dai.

Defense stocks

Bestway Marine climbed 3.1%, the most in more than a week, while Avic Aero-Engine Controls rose 1.4%. China Shipbuilding Industry, which also builds warships, advanced 0.8% after the industry ministry said new orders climbed nearly 45% in the first half of 2016.

An international tribunal on Tuesday rejected China’s claim over much of the South China Sea, in a rebuff to years of Chinese activity in the waterway, which hosts $5trn of trade a year. China boycotted the process and dismissed the ruling. The outcome may empower other claimant states and undercut President Xi Jinping’s efforts to present China as a responsible player on the world stage.

China may increase expenditure on research-and-development and procurement of weapons in an attempt to modernize the People’s Liberation Army, UBS analysts led by Bonan Li and Robin Xu wrote in a note.

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