China’s stock market closes at highest level in five years

China’s stock market has closed at its highest level in five years after the latest data from the world’s second biggest economy showed the service sector expanding at its fastest pace in a decade.

Shares in Shanghai were boosted by news that the Caixin/Markit purchasing managers’ index had continued to recover from the trough reached in February, when the coronavirus lockdown was at its most severe.

The PMI rose from 55 in May to 58.4 in June, its highest reading since spring 2010, the period after the global financial crisis. Any reading above 50 indicates expansion, and analysts said the strong performance by China’s service sector, which accounts for about 60% of the economy, suggested that the new outbreak of Covid-19 in Beijing had little impact on the country’s recovery.

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The CSI 300 index of China’s top companies jumped 2% on Friday to close at 4419 points, its highest closing level since June 2015.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: The second wave worries didn’t have a material impact on PMI figures, which was very good news for investors.”

New export business for the service sector expanded for the first time since January after an increase in foreign demand, the PMI showed. Backlogs of work increased for the first time since February, driving business confidence to a three-year high.

“This [latest survey] suggests the services sector’s recovery is gaining traction,” said analysts at Nomura, which recently raised its forecast for China’s second-quarter GDP growth to 2.6% year-on-year from 1.2%. “However, we caution that the recovery momentum could lose some steam in coming months.”

Despite the pickup in activity, Chinese companies continued to shed jobs, with employment contracting for a fifth month in June, and at a more rapid pace than in May. China remains on course for its slowest growth in three decades this year, as deep recessions in developed and emerging economies affect demand for exports of manufactured goods.

Wang Zhe, senior economist at Caixin, said: “Although businesses were optimistic about the economic outlook, they remained cautious about increasing hiring, with employment in both the manufacturing and services sectors shrinking.”

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