July 6, 2020 / 5:13 AM / a month ago

China's blue-chips vault to 5-year high on hopes of economic recovery, policy support

* SSEC 4.2%, CSI300 4.3%, HSI 3.5%

* HK->Shanghai Connect daily quota used 14.8%, Shanghai->HK daily quota used 7.6%

* FTSE China A50 +4.5%

SHANGHAI, July 6 (Reuters) - China stocks rose for a fifth session on Monday, extending a robust rally, led by financial shares on hopes of a quick economic recovery, Beijing’s continued reforms in the capital markets and ample liquidity.

By the midday break, the CSI300 index had jumped 4.3% to 4,608.68 points, its highest since June 26, 2015, while the Shanghai Composite Index gained 4.2% to 3,286.60 points, its highest since April 8, 2019.

That followed a 6.8% and 5.8% gain in the CSI300 and SSEC, respectively, the previous week.

Financial shares led the charge, with the CSI SWS securities index surging 9.5% to its highest level since November 2016, while the CSI300 banks index 4.9%.

Financial stocks and other cyclical shares were buoyed by signs that the economic recovery from the coronavirus crisis is building up steam, and by dwindling numbers of new COVID-19 cases in China, said Song Zhenyu, a fund manager at Beijing Jiayi Asset Management Company.

The northbound flows via the Stock Connect linking Hong Kong and mainland markets are a bellwether in buying A-shares, while China’s mutual funds are a significant player behind the robust rally as they are chasing the rising trend, Song added.

By midday, investors purchased about 15 billion yuan ($2.13 billion) worth of A-shares via the Stock Connect, according to Refinitiv data.

China’s services sector expanded at its fastest pace in over a decade in June as the easing of coronavirus-related lockdown measures revived consumer demand, a private survey showed on Friday.

The rebound suggests China’s overall recovery is becoming more balanced and broader based as life slowly returns to normal in one of the world’s biggest consumer markets.

Surging volumes, massive margin borrowings and a deluge of foreign money in China’s stock markets are pointing to another sizable run-up in share prices in the second half of 2020.

Policy easing and continued reforms in the capital markets, including a revamp for the benchmark Shanghai index and registration-based IPO system for the start-up board, also helped shore up investor confidence.

China’s stock market is not entirely determined by fundamentals, with liquidity conditions and the “money-making effect” also playing a significant role, said Luo Kun, analyst with Fortune Securities.

Hong Kong stocks tracked strength on the mainland.

By the lunchbreak, the Hang Seng index rose 3.5%, to 26,248.19 points, while the Hong Kong China Enterprises Index gained 3.9%, to 10,637.96 points. ($1 = 7.0510 Chinese yuan renminbi) (Reporting by Luoyan Liu and Andrew Galbraith; Editing by Kim Coghill)

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