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Hong Kong stocks recover from nearly 3-month lows, inflation data raises hopes for policy action

Hong Kong stocks recover from nearly 3-month lows, inflation data raises hopes for policy action

Hong Kong Shares recovered from a nearly three-month low as weak inflation data from China encouraged policymakers to do more to stimulate domestic demand.

The Hang Seng Index rose 0.3 percent to 17,570.70 at lunchtime, recovering from its lowest level since April 25. The Hang Seng Tech Index recovered 0.7 percent and the Shanghai Composite Index lost 0.3 percent.

Consumer prices rose 0.2 percent in June from the same period last year, slowing from 0.3 percent in the previous month, the National Bureau of Statistics said on Wednesday. The figure was also below the consensus estimate of a 0.4 percent increase. Meanwhile, producer prices, a measure of factory gate prices of industrial products, fell 0.8 percent, the agency said, marking the 21st consecutive month of decline.

“The risk of deflation has not been eliminated in China,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management in Hong Kong. “Domestic demand remains weak. The fiscal and monetary policy stance is not expansionary as the real interest rate is high and government spending remains weak. In the long term, China will need a recovery in domestic demand to stimulate the economy. If the Fed starts a rate-cutting cycle in September, this could open up some room for the PBOC (People’s Bank of China) to cut rates.”

Chinese search engine operator Baidu rose more than 10 percent after the company’s autonomous driving unit’s self-driving taxis were launched in Wuhan, the capital of central Hubei province. began to gain popularity quickly. The stock also got a boost from media reports that the capital Beijing will support the inclusion of robot taxis in ride-hailing services. Mineral water maker Nongfu Spring rose on a plan to increase its stake, and BYD gained after JPMorgan Chase raised its price target on the stock.

Hong Kong stocks are struggling to stabilize after falling 10 percent from their May highs as investors have locked in profits from a rebound fueled by government intervention. A high-level meeting of elite Communist Party members next Monday may provide some clues as to how leaders will help the world’s second-largest economy overcome headwinds such as the property downturn and low private sector confidence.

Baidu rose 11 percent to HK$95.55. Nongfu Spring jumped 4.3 percent to HK$35.20 after its majority shareholder said it plans to increase its stake in the company by up to HK$2 billion (US$256 million) within six months. BYD rose 1.5 percent to HK$238.60 after JPMorgan raised its price target for the Chinese electric vehicle maker by 86 percent to HK$475 and said the outlook for global deliveries was good.

On the other hand, property developer China Vanke slipped 1.8 percent to HK$4.41 after forecasting a loss of between 7 billion yuan ($962.1 million) and 9 billion yuan for the first half of the year. Its Shenzhen-traded shares fell 1 percent to 6.64 yuan.

Four companies began trading in the city and on mainland exchanges. Ruichang International Holdings, a maker of petroleum refining equipment, rose 30 percent to HK$1.36 from its initial public offering in Hong Kong, while Shanghai Voicecomm Information Technology, which develops conversational artificial intelligence technology, slumped 13 percent to HK$132 and Chenqi Technology Limited, a ride-hailing service provider, slipped 5.7 percent to HK$33. In Shenzhen, Jirfine Intelligence Equipment, a maker of computerized numerical control systems, rose 116 percent to 57.29 yuan.

Other major Asian markets were weaker overall. South Korea’s Kospi and Japan’s Nikkei 225 each lost 0.1 percent and Australia’s S&P/ASX 200 lost 0.3 percent.