July and August were ugly months for stock markets in China, with both mainland shares and companies that trade in Hong Kong suffering massive declines. Yet at least this week, investors believe that the carnage in Asian stocks could finally be at an end, and that helped drive major market benchmarks higher on Friday. Hong Kong's Hang Seng Index (HSIINDICES: ^HSI) added more than 100 points on Friday to the week's overall gains, which totaled up to more than 950 points, or almost 4.5%. The Shanghai Composite rose an even more impressive 1.25% on Friday, and although it was closed for much of the week for a holiday, it too seemed to respond favorably to the idea that things might improve from here.
Support from several sources
Chinese stocks saw gains in several different areas on Friday. Foremost was the Federal Reserve's release of its recent monetary-policy meeting minutes, which indicated that the U.S. central bank would probably keep rates low for the foreseeable future. That's important to the global economy worldwide, but in Hong Kong in particular, U.S. interest rates play a key role in helping the country avoid tension between the U.S.-pegged Hong Kong dollar and other regional currencies like the Chinese yuan and Japanese yen. That helped the financial sector, with BOC Hong Kong leading the index higher by 4% and with other banking names like Bank of East Asia and ICBC posting gains of 2% to 3%.
Another driver of gains came from the commodity sector, which added to its success from earlier in the week on follow-through upward moves in key markets like crude oil. As we saw in past sessions, PetroChina (NYSE:PTR) and CNOOC (OTC:CEO) both led the Hang Seng higher with gains in the 3% to 4% range.
Weighing on sentiment, though, was the continued downward move in telecom player China Mobile (NYSE:CHL). The stock fell 1.5% Friday, adding to losses throughout the week and resolutely failing to participate in the broader Chinese market's recovery even as the mobile giant has participated in the recent release of the iPhone 6s in China.
Can China keep moving higher?
After such a strong downward move, Chinese markets have started to see interest from long-term value investors who have more bullish outlooks on the nation's economy. Even though China's growth rate has fallen significantly, it still outpaces most of the rest of the world by a considerable margin. Playing out all the opportunities in the growing Chinese market will take decades for businesses to achieve, and those with a long time horizon believe they can capture the profits that will result from those efforts.
On the other hand, structural concerns about the Chinese economy will hold back positive sentiment. Given that China hasn't entirely embraced free-market economics, the threat of various interventions -- especially if anything goes dramatically wrong in one part of the domestic economy -- could have an impact on foreign investors and make some leery.
Overall, it's important not to read too much into a single week's bounce in the Chinese stock market. With so much uncertainty in the global economy, China will have to play its part to drive growth in order to keep stocks in Hong Kong and on the mainland moving higher.