November 12, 2018 / 7:58 AM / a month ago

China stocks end higher as govt supports share buyback plans

    * .SSEC and .CSI300 both up 1.2 pct, after closing down for
a week
    * .CHINEXTP up close to 3.5 pct, CSI300's tech sub index up
4 pct 
    * New buyback incentive boosts small-caps with pledged share
trouble

    By Noah Sin
    HONG KONG, Nov 12 (Reuters) - Stocks in China snapped a
five-session losing streak to end higher on Monday, after the
securities regulator said it will make it easier for companies
to buy back shares. The news lifted smaller-cap stocks, which
have been under pressure with pledged share financing as the
equity market tanked in October.
    
** The Shanghai Composite index closed 1.2 percent higher at
2,630.52. The blue-chip CSI300 index           ended 1.2 percent
firmer. The market closed lower for five straight sessions
before trading commenced on Monday.             
    
** CSI300's financial sector sub-index             closed higher
by 0.6 percent, the consumer staples sector              ended
down 0.4 percent, the real estate index              closed up
1.5 percent and the healthcare sub-index              ended
higher by 1.2 percent.
    
** Notably, the start-up board ChiNext Composite index
            rallied to gain 3.5 percent, helping the Shenzhen
index        , which is smaller than its Shanghai counterpart,
to drive up 2.5 percent. CSI300's information technology
             sub-index also jumped over 4 percent. 
    
** The tech and small-cap rally came after the China Securities
Regulatory Commission said on Friday it will simplify the
procedure for listed companies to initiative a share buyback.
             
    
** "This mostly benefits small and private companies," said
Zhang Gang, an analyst at Central Securities in Shanghai. "There
seem to be a signal that restraints on private companies are
being relaxed, and that there is a real desire [from
authorities] to resolve the pledged shares issues."
    
** Shares amounting to 10 percent of total market capitalization
in China have been pledged, mostly by small- and medium-sized
companies, which have been hit by a slowing economy and the
ongoing U.S.-China trade conflict.             
 
** The Chinese government released several other similar policy
signals in recent days. For example, Finance Minister Liu Kun
and the State Administration of Taxation's chief have said in
quick succession that China will study and implement tax cuts to
back businesses.                           
    
** With the introduction of new policy measures, risk appetite
is on the rise in the Chinese equity market, analysts at
Chengdu-based Chuancai Securities wrote in a note on Monday.
    
** "The A-share market is entering its latter phase of
corrective rebound," said the analysts. "We will focus on high
quality growth stocks in artificial intelligence, 5G, cloud
computing and chipmakers, and blue chips in the financial, real
estate and pharmaceutical sectors."
    
** Concerns subsided about risks in the financial sector after
state-owned China Securities Journal reported on Monday, citing
official sources, that lending targets are not set in stone.
             The report came after Guo Shuqing, head of the
banking and insurance regulator, said last week at least a third
of big banks' new loans should be allocated to private
companies.             
    
** But spring for financial companies, unlike small-caps, will
not come as quickly, Zhang said.
    
** "Longer term investors with liquidity readily available are
the ones buying," he said. The smaller caps are relatively cheap
to these investors following the recent round of correction.
Financials may rebound in the first half of 2019 "when we have a
clearer picture of the recovery," Zhang added.
 
** The largest percentage gainers in the main Shanghai Composite
index were Kingswood Enterprise Co Ltd             and Shandong
Jiangquan Industry Co Ltd             and Time Publishing and
Media Co Ltd            , all up by 10.1 percent.     

    
 (Reporting by Noah Sin, Editing by Sherry Jacob-Phillips)
  
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