Stocks recover as China, US reach a preliminary agreement on trade

The A-share market rallied to its highest level in almost a month on Monday, bolstered by news of a preliminary agreement between China and US trade negotiators at the end of last week.

The benchmark Shanghai Composite Index rallied 1.15 percent to close at 3007.88 points on Monday, its highest finish since ending at 3030.75 on Sept 16. The index climbed for the fifth consecutive session.

The Shenzhen Component Index climbed 1.24 percent to close at 9786.64 points, its loftiest finish since Sept 24 when it ended at 9811.38.

Shanghai-based market tracker Wind Info said A-share listed financial service providers reported the strongest daily increase of 4.21 percent on average, followed by commercial banks, which reported an average daily rise of 2.91 percent on Monday.

CITIC Securities analysts wrote in a research note that positive signs in the external environment, including the preliminary deal reached between China and US trade negotiators on Friday, sparked the robust advance in the A-share market.

Analysts said the upward trend of the A-share market may encourage investors to take long positions and possibly inspire the benchmark indexes to another high within the year.

Yang Delong, chief economist at Shenzhen-based First Seafront Fund, said that the detailed timeline to remove the foreign ownership cap on mutual fund management companies, futures companies and securities firms, which was announced by the China Securities Regulatory Commission on Friday, will also provide a strong impetus for a rally in the A-share market.

"With three years of adjustment, the A-share market is wavering around a historic low. The A-share market's low valuation makes it a huge attraction compared to the other capital markets in the world. With the central government's strong support for the real economy, including the cut in taxes and fees, the continued inflow of overseas capital will become an important driving force for the A-share market," he said.

Haitong Securities chief strategist Xun Yugen said the A-share market apparently started its fresh rally in late August, and that technology companies and securities firms are leading the charge in this advance.

One of the reasons for the surge is that a number of favorable policies has been introduced for technology companies.

The launch of the STAR Market at the Shanghai Stock Exchange, as well as the loosened grip on financing, has boosted capital inflows to technology companies, which were injected by venture capital and private equity firms.

With the proliferation of 5G technology, industry demand began picking up. Companies will thus receive more orders and see their return on equity further improve. The trend can be readily seen in the improved profitability of the electronics and computer companies as shown in their half-year results, said Xun.

Securities firms are seeing their businesses becoming more diversified and eventually growing into comprehensive investment banks, mainly as a result of Chinese capital market reforms. On the other hand, securities firms will be mainly responsible for the financing of technology companies, which in turn will help to boost the performance of those securities firms, he added.