Brokers gain in Shanghai trading on optimism over Shanghai-HK stock connect

Shanghai stocks gained on Monday amid expectation of capital inflows as the launch of a pilot program to connect the Shanghai and Hong Kong stock markets is drawing near, even though data showed China's manufacturing activity weaken last month.

The key Shanghai Composite Index rose 0.83 percent, or 18.31 points, to 2,235.51. Turnover at the trading close was 117.2 billion yuan (US$18.9 billion).

Hong Kong Exchanges and Cleaning Ltd said in a statement on its website yesterday that the first round of market rehearsal for Shanghai-Hong Kong Stock Connect has been completed smoothly.

The two-day rehearsal conducted over the weekend covered northbound and southbound trading processes as well as clearing and settlement procedures in Hong Kong and Shanghai, allowing participants to test their readiness for the program.

Although there is no official timetable, it's widely expected that the program will be launched in the middle of October.

Economists of HSBC Global Research said today that the scheme is another step in the opening up of China's capital market to international flows, helping to "boost efficiency through competition, increase domestic financial market liquidity, attract more sophisticated investors and improve governance standards."

Brokerages gained. CITIC Securities, China's largest-listed broker, added 0.3 percent to 12.93 yuan. Haitong Securities rose 0.3 percent to 9.85 yuan.

Hopes for more economic stimulus also boosted the market after fresh data showed a moderation in the growth of China's manufacturing sector.

The official Purchasing Managers' Index released by the National Bureau of Statistics today fell from 51.7 in July to 51.1 in August, indicating a slowdown in larger and state-owned industrial companies. HSBC's China Purchasing Managers' Index, a gauge of manufacturing activity slanted more towards private and export-oriented firms, also fell last month to 50.2, down from an 18-month high of 51.7 in July, HSBC Holdings PLC announced today.

"The weaker PMI data suggest that China's shallow recovery has started to lose momentum," economists with Nomura said in a note today, "We continue to expect the government to maintain a loose policy stance in the third quarter to offset headwinds."