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Chinese stocks stabilise after longest streak since 2016

Hong Kong - Chinese stocks stabilised after a five-day losing streak for the benchmark Shanghai gauge as small-cap shares rebounded and the central bank added funds to the banking system.

The Shanghai Composite Index ended the day 0.2% stronger, halting the longest run of declines since August 2015.

The ChiNext gauge of mostly small-cap technology companies rallied after plunging in the previous session. A broader measure of equities traded in Shenzhen rebounded from a seven-month low.

China’s shares have been under pressure since the start of December, along with the nation’s bonds, as monetary conditions tightened. While the central bank has since August tried to drive up borrowing costs to stave off asset bubbles, it boosted cash injections on Tuesday amid increased demand before the January to 27 February 2 Lunar New Year holidays.

The People’s Bank of China added a net 270bn yuan ($39bn) through open-market operations, the most in a year.

"The PBOC’s liquidity injections indicate that the government wants to stabilize equities ahead of Lunar New Year, helping calm markets today," said Ronald Wan, chief executive at Partners Capital International in Hong Kong.

"The yuan’s advance today is also supportive for Chinese stocks.”

The Hang Seng Index added 0.5% as of 3:04 in Hong Kong, while the Hang Seng China Enterprises Index gained 0.4%. The onshore yuan strengthened for a second day, adding 0.2%.

Leshi surges

The Shenzhen Composite dropped as much as 6.1% on Monday before paring losses to 3.6% at the close. The ChiNext gauge fell in the last eight trading days, dragging its relative-strength index to the lowest level in four years.
 
The measure’s rebound on Tuesday was led by Leshi Internet Information & Technology Corp., which surged by the 10% daily limit.

Company Chairman Jia Yueting’s LeEco technology empire has secured strategic investments, according to a statement released on Friday.

Investors are increasingly taking bearish positions in China’s shares. Speculators in the US have boosted short sales of an exchange-traded fund tracking China’s domestic equity market to a one-year high, while the Shanghai Composite has slumped more than 5% since the end of November.

Kevin Smith, the Denver-based founder and chief executive officer of Crescat Capital, has doubled down on wagers against Chinese stocks as the Communist Party steps up measures to shore up the yuan.

"These recent monetary tightening measures point to the increased risk that Chinese officials will trigger the credit crisis first," said Smith, whose China bets in the global macro fund returned about 3.4% last quarter.
 
"It really only increases our conviction that there are opportunities on the equity-side short, particularly if they continue to defend the currency."

Cheung Kong Property Holdings rose 2.3% to lead gains on Hong Kong’s benchmark.

The property developer said on Monday that it bought back 4.2 million shares for HK$210.2m ($27.1m) Cathay Pacific Airways, Asia’s biggest international airline, climbed 1.7% to its highest level since September.

The carrier said Monday it plans to shorten its fuel-hedging program and revamp its workforce as part of a new business strategy to halt a slide in earnings Landing International Development plunged 30% to a record low in Hong Kong after the company said on Monday that it would use proceeds of a rights offer to repay loans.

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