SHANGHAI: China's blue-chip CIS300 Index rose early on Monday, set for a sixth day of gains, with upbeat industrial profit data strengthening conviction the Chinese economy has bottomed out and making risk assets such as equities more attractive than bonds.
Hong Kong shares also strengthened, touching a two-week high, as a pull-back in the surging U.S. dollar gave some relief to Asian shares, which had underperformed on worries about capital flight to high-yielding U.S. markets.
Sentiment in the Hong Kong market was aided by an announcement on the weekend that the long-awaited Shenzhen-Hong Kong Stock Connect would be launched on Dec. 5, raising hopes that a fresh wave of Chinese money would soon head southward.
China's blue-chip CSI300 index rose 0.6 percent, to 3,542.41 points by the lunch break, and looks set to score a six-session winning streak. The Shanghai Composite Index gained 0.5 percent, to 3,278.51 points.
Investors' risk appetite continued to rise after data showed China's industrial profits in October rose 9.8 percent, aided by the raw materials sector.
The Hang Seng index added 0.7 percent, to 22,886.21 points, the highest since Nov 10. The Hong Kong China Enterprises Index gained 1.1 percent, to 9,895.94.
Small-caps, which will be included in the Shenzhen-Hong Kong investment link, were the biggest gainers, with the Hang Seng Composite SmallCap Index jumping 1.5 percent to a one-month high.
But underscoring wide valuation gaps between Hong Kong and Shenzhen markets, as well as the trend in fund flows, Shenzhen's start-up board ChiNext, which is four times more expensive than the HSSI, ended the morning roughly flat.
"The Connect will benefit Hong Kong stocks more, because more money will flow southward due to yuan depreciation worries, and the huge discount Hong Kong small-caps enjoy," said David Dai, Shanghai-based investor director at Nanhai Fund Management Co.
Dai said blue-chips rather than small-caps were underpinning the recent rally in the China market, because modestly-priced cyclical stocks were the biggest beneficiaries of an emerging rotation of investor money out of property and bond markets.
"More and more investors believe the economy has bottomed out and that the bond market bull run is coming to an end, which is why blue-chips are becoming attractive and being re-priced."
All main sectors rose in China and Hong Kong.
Energy shares , however, underperformed the broader market, after a sharp correction in global oil prices amid worries that a production cut deal will not be reached during a meeting of the Organization of Petroleum Exporting Countries this week.
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