Hong Kong and China stocks were trading higher at midday on Monday, with Chinese commercial banks lending support to the city’s benchmark Hang Seng Index at the start of what will be a news laden week. Investors will be keeping an eye out for the outcome from the US-China trade negotiations, and interest rate discussions at the US Federal Reserve this week.

At midday, the Hang Seng Index had risen by 0.42 per cent, or 115 points, to 27,684.23. Chinese banks and financial groups, such as China Construction Bank and Ping An, helped lead the gauge higher, as investors are hopeful following news that the People’s Bank of China, the country’s central bank, has launched central bank bills swaps that could be swapped for Chinese banks’ perpetual bonds.

“At the current level, the Hang Seng Index has risen to a four-month high. Where it will head in the short term will be driven by news flows expected from the US-China trade talks in Washington, and the Federal Open Market Committee’s decision on interest rate hikes,” said Linus Yip Sheung Chi, chief strategist for First Shanghai Securities based in Hong Kong.

Last week, the PBOC said it would launch the bills swap for dealers engaged in open-market operations, allowing them to swap perpetual bonds issued by Chinese banks for the bills. The move is expected to bolster liquidity for perpetual bonds, and is viewed as encouraging more bond issuances by banks.

Chinese banks have since the beginning of the year been allowed to issue perpetual bonds as a way of improving their capital adequacy ratios, a move that is expected to help them boost lending and support for the real economy.

By the lunch break, China Construction Bank had risen by 1.17 per cent to HK$6.9, while Ping An had risen by 1.36 per cent to HK$74.4.

The spotlight this week will also be on the US-China trade talks, as Vice-Premier Liu He flies to Washington to bring both sides back to the negotiating table. Increasingly, market participants are expecting a deal to emerge in the short term, as the March 1 deadline – when the ongoing 90-day truce expires – approaches.

Some market watchers are also waiting to see if the two sides can reach an agreement on the removal of the additional tariffs that are already in place since mid-2018.

All major indices were trending higher in mainland China. The benchmark Shanghai Composite Index has edged up 0.32 per cent, or 8.42 points, to 2,610.14; the Shenzhen Component Index has risen by 0.58 per cent, or 43.66 points, to 7639.11; and the CSI 300 has risen by 0.52 per cent, or 16.6 points, to 3201.07.

Also on Monday morning, China’s National Statistics Bureau released industrial profit figures that show a 1.9 per cent decline in December 2018, a second straight month of declines, as economic growth slows and manufacturing output growth remains under pressure.

Market watchers said investors will remain vigilant this week, with China’s January purchasing managers’ index due on Thursday. This number will indicate which way the world’s second-largest economy is heading.

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