21 October 2016
Orient Securities Co. Ltd and its peers are likely to stay strong on policy support. Photo:
Orient Securities Co. Ltd and its peers are likely to stay strong on policy support. Photo:

Mainland brokerages, iron ore miners to gain on policy support

The Hang Seng Index has hit a seven-year high after Chinese authorities relaxed rules for mainland institutional investors to access H shares.

Foreign investors have opted to take profit and stay away as A shares become increasingly expensive.

However, foreign capital only accounts for a tiny part of mainland A shares. The market rally will continue as long as local investors remain confident. The Shanghai Composite Index once tested 4,000 in midday trading.

Currently, the fundamentals for most stocks are not excellent, but the policy direction is still to support the equity market, and massive capital continues to flow in. Given such a situation, the liquidity-driven market bull has yet to wind up.

Nevertheless, new stock accounts in Shanghai and Shenzhen added 1.56 million between March 30 and April 3, down 6.39 percent from the previous week, according to data from ChinaClear. It might be a sign that money flowing into the market is close to the peak.

The Shanghai Stock Exchange said on April 3 that it will allow individual investors to open multiple trading accounts with different brokerage firms. Currently, they are only allowed to have one trading account. The move will intensify competition among brokerages.

Several brokerage stocks led the market rally on Wednesday with Western Securities (002673.CN), Guosen Securities (002736.CN) and Orient Securities (600958.CN) surging by the daily limit.

Meanwhile, Beijing continues to unveil supportive policies. The State Council, the nation’s cabinet, said on Wednesday the government will reduce the existing resource tax levied on iron ore by 40 percent, in a bid to ease the burden on domestic iron ore miners and support the real economy.

The move will boost shares of several domestic iron ore producers like Shandong Hongda Mining (600532.CN); Guangdong Mingzhu Group (600382.CN), a major iron ore producer in south China; and Guangsu Jiu Steel Group Hongxing Iron & Steel (600307.CN), one of the largest steelmakers in northwestern China.

The cabinet also cut coal-fired on-grid tariff by 0.02 yuan per kWh, and reduced industrial power tariff by 0.18 yuan per kWh. The move will help ease the cost burden of a number of companies but it could reduce the earnings of power plants. It’s also bad news for coal miners who are already struggling with oversupply in the market.

This article appeared in the Hong Kong Economic Journal on April 9.

Translation by Julie Zhu

[Chinese version 中文版]

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a columnist at the Hong Kong Economic Journal

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