Chinese markets soar as state fund indicates share buying spree, BP beats expectations and Virgin Money delivers positive update

“The big story on the markets was the sharp rally in Chinese stocks after a state-backed initiative to stir up interest in equities,” says Russ Mould, Investment Director at AJ Bell.

“The Hang Seng advanced 4% and the SSE jumped 3.2%, some of the biggest one-day gains we’ve seen on the Chinese market in a long time. The Hang Seng Tech index did even better, soaring by 7%.

“A state-owned investment fund indicated it would continue to buy up shares in what looks like a concerted effort to breathe some new life back into Chinese equities after they fell out of favour. The securities regulator also pledged to encourage more long-term funds to buy shares and to encourage companies to buy back more of their own shares.

“A clampdown by the Chinese government on regulation and data protection previously caused jitters on the market and that was followed up by a flop post-Covid economic reopening. With signs the country is finding it harder to sustain strong levels of economic growth, it’s no wonder investors lost interest in the country.

“Investment wisdom suggests the best time to buy equities is when everyone has lost interest, so we’ve seen a few brave outfits take a contrarian view on China in recent months and they will certainly welcome today’s price action. The big unknown is whether this effective stimulus initiative is just a short-term boost or enough to trigger a sustained revival in Chinese markets.

“In the UK, the FTSE 100 enjoyed a 0.8% boost thanks to well-received results from BP and notable strength in financials and miners. Only eight stocks on the FTSE 100 were in negative territory in early trading on Tuesday, showing a healthy broad-based rally.”

BP

“A big plunge in BP’s profit year-on-year is not really big news. Volatile oil prices will inevitably feed through to the company’s bottom line. It is also worth remembering that last year’s profit represented a record level.

“The fact BP’s latest profit beat expectations makes this a solid start for Murray Auchincloss as its new chief executive. A big share buyback is also helping to get investors on side, as the new boss demonstrates his commitment to returning cash to shareholders.

“The departure of Bernard Looney under a cloud has left a bit of a vacuum at the top of BP as, to date, the former finance chief Auchincloss has said he will stick with the plan outlined by Looney.

“The trouble is that plan was inconsistent. At first it involved a big push on net zero, but Looney subsequently rowed back somewhat. He might argue this was necessary because energy security suddenly became more of a priority in the wake of Russia’s invasion of Ukraine.

“However, there is undoubtedly pressure from some shareholders to reduce emphasis on the energy transition even further. They have been eyeing jealously the better returns delivered by BP’s US rivals which have made far fewer sweeping commitments to green investments.

“Auchincloss acknowledges BP can be a ‘simpler, more focused and higher-value company’ and that’s a manifesto most could get on board with. How exactly the company gets there and what that means for the various parts of the business remains to be seen. The devil will be in the detail. It is striking that while oil and gas production is expected to rise this year, output from environmentally friendly sources is expected to fall.”

Virgin Money

“Virgin Money was remarkably positive in its latest update, saying it had achieved growth in new accounts, deposits and lending, at stable margins and with ongoing cost efficiencies.

“Credit card usage has been going up in the UK as household finances remain under pressure from the high interest rate environment. Judging by Virgin Money’s results, it is enjoying a fair slice of the pie as it grew credit card lending by 4.1% in its first quarter.

“The big worry whenever a bank updates on trading is the level of bad debts given the fragile backdrop. Virgin Money reported a ‘modest increase’ in its provisions, which certainly hasn’t troubled the market.”

These articles are for information purposes only and are not a personal recommendation or advice.