| China Daily | Updated
Investors study the market at an exchange in Nantong, Jiangsu province. XU CONGJUN / FOR CHINA DAILY
Shanghai Index hits 3,410 in morning; Shenzhen bourse climbs by 1.6 percent
Chinese mainland A-share stocks hit 21-month highs on Monday morning after a weeklong National Day holiday, benefiting from the central bank's targeted reserve requirement ratio cut and a strong global equity market performance.
The Shanghai Composite Index surged to 3,410 points in the morning and closed the day with a 0.76 percent gain to 3374.38 points. The Shenzhen Component Index rose by 1.6 percent, and the ChiNext startup index climbed by 1.22 percent.
The blue-chip CSI300 index rose 1.2 percent to 3,882.21 points. At one point, the CSI300 Index was up 2.1 percent.
Sectors rallied across the board, with gains led by banking and real estate stocks.
"Chinese mainland A shares on Monday have a chance to reflect the central bank's targeted reserve requirement rate cut during the holiday," said Hong Hao, chief strategist at BOCOM International Ltd.
"The Hong Kong stocks have rallied hard during the holiday, and A shares are playing catch up today."
China's central bank announced a targeted reserve requirement ratio cut at the end of September to encourage inclusive financing at commercial banks, such as credit support for small- and micro-sized enterprises, startups and agricultural production.
Hong said the cut, which goes into effect in 2018, is a structural adjustment that does not change the country's overall monetary policy stance, but it will offer additional liquidity, roughly 300 billion yuan ($45.3 billion) to 400 billion yuan, which will be good news for stocks.
Hong added that a disappointing private survey on China's service sector in September dampened sentiment slightly.
The Caixin General Services Purchasing Managers' Index slipped to 50.6 in September from 52.7 in August, according to the survey conducted by financial information service provider Markit and sponsored by Caixin Media Co Ltd.
A reading above 50 indicates expansion, while a reading below 50 represents contraction.
Dong Dengxin, a finance professor at Wuhan University of Science and Technology, said strong performances of global equity markets last week and easing in index futures encouraged the A-shares to rise on Monday.
Hong Kong stocks dipped on Monday after hitting near 10-year highs last week, as investors took profit in property and financial shares ahead of Chief Executive Carrie Lam Cheng Yuet-ngor's first policy address on Wednesday.
The China Financial Futures Exchange, where three stock index futures contracts are listed, announced in September that it would lower margin requirements of stock index futures contracts.
Dong said production overcapacity can still be a problem for the Chinese economy, which will influence the performance of the A-share market.
Upstream companies such as in the coal and steel industries effectively reduced overcapacity with policy encouragement in the second half of 2016, but they will again face the challenge of overcapacity this year, Dong said.