Subdued outlook prunes gains after shares fluctuate

Benchmark sees slight rise in lackluster trading amid growth concerns

Equities recovered slightly in lackluster trade on Thursday amid concerns about the ongoing weakness in manufacturing and disappointing third-quarter results from the financial sector.

The benchmark Shanghai Composite Index rose 0.36 percent to close at 3,387.32 points. The SCI has been fluctuating around the 3,400 mark for four consecutive trading sessions, with share prices of weighted stocks in the banking, steel and manufacturing sectors seeing wild fluctuations, said a research note from Minsheng Securities Co Ltd.

According to analysts, the overall market sentiment remained subdued on doubts about the sustenance of the rally. Some analysts expect interest rate cuts later this year to spur credit growth, reduce enterprises costs and fuel a recovery in the real economy.

Some analysts said that there is already a recovery in stocks of consumption-related firms. Even if the benchmark falls for a couple of days, it will rebound due to the inherent strengths of the real economy, they said.

Huatai Securities Co Ltd, a leading market research firm, said in a note that despite the volatility the overall trend still remains bullish.

However, other analysts feel that current valuations are not reasonable and corrections will take place in the near term. Citing the wild swings in small-cap stocks, they said that the average price-to-earnings ratio of ChiNext, China's startup index that tracks high-tech companies, has surged to 80 times in recent weeks.

Shares of electrical appliances producers, retail, trade and defense-related companies led the rally on Thursday, with gains of more than 1.2 percent across the sectors.

The Shenzhen Component Index gained 0.63 percent to close at 11,566.66 points. Several small-cap stocks across sectors from food producers to home decoration suppliers rose 10 percent, the maximum permissible daily trading limit.

Market observers said that smart manufacturing, robotics, environmental protection and renewable energy sectors are among the sectors exposed to most fluctuations, as shares of such sectors are under selling pressure after their prices rose in the past two weeks.

Companies from these sectors may benefit from cooperation agreements reached during German Chancellor Angela Merkel's official visit to China on Thursday and Friday.

Deutsche Boerse AG announces new joint venture to strengthen financial links

As German Chancellor Angela Merkel seeks deeper economic ties with China, Deutsche Boerse AG announced a new venture intended to strengthen financial links between the two countries.

Germany's biggest exchange and China Foreign Exchange Trade System agreed on a joint venture that will host interbank products and renminbi-denominated currency and interest-rate trading, according to a statement on Thursday. CFET, run by the People's Bank of China, provides trading and information for interbank bonds and foreign exchange.

A week after Chinese President Xi Jinping stayed at Buckingham Palace in London, Germany is getting its turn at building its relationship with the world's second-biggest economy.

And just as London Stock Exchange Group played a role in the United Kingdom's courtship of China and the ensuing volley of announcements, Deutsche Boerse Chief Executive Officer Carsten Kengeter is part of Merkel's entourage of business leaders in Beijing.

"Our joint venture will contribute to the continued growth of our markets and economies," Kengeter said in a statement.

"Further, it will also strengthen the relevance of Europe as an renminbi offshore hub and be mutually beneficial for our organizations, and importantly, for our customers."

The German exchange said in May that it is starting a joint venture with two Chinese exchanges to offer renminbi-denominated instruments. The Frankfurt-based operation will be called China Europe International Exchange, or CEINEX, and is set to begin trading on Nov 18.

The Shanghai Stock Exchange and China Financial Futures Exchange are the other two partners in the project, which initially will offer trading in exchange-traded funds and bonds. It is the first authorized platform that is dedicated to renminbi trading outside the Chinese mainland.