Chinese Benchmarks Catch Fire

Chinese benchmarks just saw biggest single-day gain in five years.

Author: Belinda Zhou   

China's Shanghai Composite recorded its biggest one-day gain on Monday, sending shares to fly in the green in Hong Kong and other regions across the world on a future robust recovery.

The Shanghai Composite soared 5.7% on Monday, closing at 3,333 points and marking its best single-day percentage gain since July 2015. The benchmark has gained nearly 6% last week.

The other benchmark in mainland China, the Shenzhen Composite, closed up 4% at 12,942 points on Monday.The Hang Seng Index in Hong Kong traded at 26,339, up 4%. 

The Shanghai Composite and the Hang Seng Index are technically entering a bull market after a recent low in late March. (The definition of a bull market is when stock prices rise by 20% usually after a drop of 20% and before a second 20% decline.) 

Before this movement, Hong Kong stocks suffered its worst percentage drop of 6% in March, the most  in a demi-decade since July 2015 on news that Beijing intends to implement a national security law that would tighten control over the city.

The daily transaction turnover of exchanges in Shanghai and Shenzhen totaled 1.5661 billion yuan ($224 million), which exceeded 1 trillion yuan for three consecutive days. The net inflow of northbound funds exceeded 16 billion yuan ($2.3 million) from Hong Kong to mainland China throughout the day.

Among all the gainers, the Chinese financial sector enjoyed a high-yielding Monday, up 9% sector-wide. Of all the 36 Chinese A-share listed banks, 23 local banking stocks hit its daily upside limit while even the lowest gain was still close to 6% on Monday.

Reports of the "healthy bull market" was displayed in a front-page editorial in the state-owned newspaper China Securities Journal as well as coverage from state broadcaster Xinwen Lianbo on Monday, both of which reflect the official positions of the government.

The second-largest economy also clocked positive data signaling a real recovery in China. In June, China's official manufacturing and non-manufacturing PMIs rose by 0.3% and 0.8% from the previous month to 50.9 and 54.4, respectively, confirming that economic operations have continued to accelerate since March.

The rebound in stock prices also moved stocks up around Asia. Tokyo's Nikkei 225 Index gained 1.8%, while South Korea's Kospi Index advanced 1.7%.

U.S. Stocks also climbed following the surge in Chinese markets. The S&P 500 added about 50 points or 1.59%, the blue-chip Dow Jones gained 460 points or 1.78% and tech-heavy Nasdaq Composite rose 2.21%.

The fear index in the U.S. has dropped to 28 points as of Monday, much lower than its recent high of 83 in March.