Financials lift China stocks, but policy tightening worries persist

SHANGHAI: China shares eked out gains on Tuesday, as optimism on economic recovery from the Covid-19 pandemic prompted fresh buying in financials and cyclical stocks, while worries over policy tightening continued to weigh on sectors with lofty valuations.

The CSI300 index edged up 0.1 per cent to 5,603.68 points by the end of the morning session, while the Shanghai Composite Index gained 0.3 per cent to 3,654.77 points.

Leading the gains, the CSI300 banks index rose 2.1 per cent, while the CSI300 cyclical industry index added 0.9 per cent.

"The trend of China's policy tightening is quite evident and definite, though the PBOC would refrain from sudden and fast tightening with an aim to provide stability for the market," said Zheng Zichun, an analyst with AVIC Securities.

"We now favour cyclical companies, including those in petroleum and chemical, nonferrous metals, digging and financial industries," he added.

China's central bank said it would prioritise policy stability and avoid making sudden shifts, while providing the support needed for a continued economic recovery in 2021.

High-flying sectors including consumer and new energy firms continued to sag as tightening fears weigh.

The CSI300 consumer discretionary index dropped 1.7 per cent after falling 5.9 per cent on Monday, while the CSI new energy index declined 0.7 per cent.

China reported 10 new Covid-19 cases on Feb. 22, down from 11 cases a day earlier, the national health authority said on Tuesday.

Market reaction to latest headlines on Sino-U.S. relations was quite muted.

Wally Adeyemo, President Joe Biden's nominee for the No. 2 job at the U.S. Treasury, vowed to crack down on authoritarian governments and fight unfair economic practices in China and elsewhere, while working to rectify economic inequality at home.

In Hong Kong, the Hang Seng index rose 1.5 per cent to 30,769.20 points, while the Hong Kong China Enterprises Index gained 0.5 per cent to 11,952.03.