China stocks extend rebound but banks lose steam, Hong Kong up on Wall Street rally
China stocks rose on Friday, encouraged by strong gains on Wall Street and signs of fresh support from Beijing after a five-day plunge that panicked global markets.
But gains in major indexes were tempered by weakness in banks, which reported virtually no profit growth in the first-half and mounting bad loans, adding to worries that the economy may be at risk of a sharper slowdown than earlier expected.
The blue-chip CSI300 index rose 1.5pc to 3,254.27 points by midday, paring some of its early gains. The Shanghai Composite Index gained 1.9pc to 3,143.02 points.
Still, the indexes are heading for a weekly fall of about 10pc, and a monthly slide of around 14pc, with the Shanghai market on course to register its worst monthly performance since Aug 2009.
Hong Kong stocks also rose. The Hang Seng index added 0.5pc to 21,948.61 points, while the Hong Kong China Enterprises Index gained 0.1pc, to 9,874.14.
After a fresh bout of heavy selling early in the week, market sentiment in China appears to be calming down.
The central bank cut interest rates and banks' reserve requirements late on Tuesday, and the government has moved to put more money into the market in addition to the billions it mobilised in early summer to avert a full-blown market crash.
Foreign interest in China shares also seems to be slowly reviving after the plunge left valuations more attractive. Money is flowing into the country again via the Shanghai-Hong Kong Connect scheme.
On Friday, respected financial magazine Caixin reported that China's state margin lender has applied for one-year loan from banks worth about 1.4 trillion yuan to fund potential stock purchases.
China also announced that local pensions funds will start investing 2 trillion yuan as soon as possible in stocks and other assets.
But some analysts remain pessimistic, citing low trading volume and the continuous pace of deleveraging.
"If you look at the small trading volume, the rebound could be just technical as confidence is still very weak," said Hou Yinming, strategist at AJ Securities.
"If the rally in blue-chips is sustainable, market excitement could be re-kindled, but such a scenario is not very likely under the current economic environment."
Indeed, banking stocks lost momentum after Thursday's surge, weighed down by lacklustre results.
Top lender ICBC reported a dip in quarterly profit for the first time in six years, as margins shrank and bad loans rose.
Meanwhile, profit growth flatlined at Agricultural Bank of China (AgBank) and Bank of Communications.
Most Chinese lenders' shares fell in China and Hong Kong.
In another blow to investor confidence toward blue-chips, PetroChina, China's biggest oil and gas producer, reported a 63pc drop in first-half profits.
But PetroChina shares gained on Friday morning, helped by an overnight jump in oil prices.