New | Bargain hunters push Chinese stocks up, fundamentals remain unchanged

Potential state sector reforms helped excite mainland investors on Thursday with a rumoured merger lifting Chinese stocks into positive territory after a steep decline on Wednesday, while in Hong Kong disappointing telecommunications results weighed on market sentiment.

The Shanghai Composite Index climbed 1.45 per cent to 3,368.739 points after media reports of a possible merger between state-owned airlines Air China and China Southern Airlines.

Shares in the two companies soared the daily maximum of 10 per cent to 9.46 yuan (HK$11.53) and 8.97 yuan respectively. Their Hong Kong shares also rose sharply. Both firms later released Hong Kong stock exchange announcements saying they had no information to disclose.

The Shenzhen Composite Index gained 3.71 per cent to 1,959.19 while the small cap tracking ChiNext index, which took a 6.6 per cent beating the day before, recovered 4.84 per cent to finish at 2,458.14.

Chinese bank stocks retreated with Industrial and Commercial Bank of China dropping 2.52 per cent to 4.65 yuan and Bank of China slipping 1.99 per cent to 3.95 yuan.

The macro picture has not changed and China's markets rebounded on bargain hunting, said Ivan Li, equity analyst at Tung Shing Securities.

The potential merger renewed investors interest in the state sector and gave support to government talk of further sector reform, analysts said. Pharmaceutical companies also rallied on expectations the industry is in line for some benefits at the upcoming plenum in Beijing.