Bloomberg News

Hong Kong Stocks Exit Bear Market on Europe Deals, China Easing

October 27, 2011

Oct. 27 (Bloomberg) -- Hong Kong stocks rose, with the Hang Seng Index climbing 21 percent from a two year low reach earlier this month, on reports European leaders reached an agreement on writing down Greek debt and amid speculation China will ease monetary policies.

Esprit Holdings Ltd., which gets 79 percent of its revenue in Europe, surged 6.8 percent. Li & Fung Ltd., the world’s biggest supplier to Wal-Mart Stores Inc., jumped 5.7 percent after orders for U.S. durable goods rose the most in six months. Industrial & Commercial Bank of China Ltd. led the mainland’s biggest lenders higher on speculation the government will ease monetary policies to boost the economy.

“Sentiment is turning more positive,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “The prospect of monetary easing in China gives Hong Kong stocks good short-term momentum. Europe seems to be moving closer to solving the region’s sovereign debt crisis.”

The Hang Seng Index advanced 3.3 percent to 19,688.70 at the 4 p.m. close in Hong Kong, its highest close since Sept. 9. Just six stocks fell on the 46-member gauge. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong surged 5.1 percent to 10,565.76.

The Hang Seng Index climbed 21 percent from a two-year low reached on Oct. 4, exiting a so-called bear market after two months. The gauge has risen 9.2 percent this week amid signs European leaders are making progress in tackling the region’s sovereign debt crisis and as China’s government signaled it’s considering policies to boost economic growth.

Bear Market

The gauge entered what some investors define as a bear market on Aug. 9 when it tumbled more than 20 percent from a November 2010 high amid reports of accelerating Chinese inflation and the worsening Europe credit crisis added to concern the global economy was headed for recession.

“Risk appetite has improved quite a lot,” said Ben Kwong, Hong Kong-based chief operating officer of KGI Asia Ltd. “Expectations that China may relax its tightening policy a little bit aroused investor sentiment. Europe’s debt crisis seemed to have some progress with major countries coming to some agreement helping to alleviate fears.”

European leaders are set to ratify an agreement with banks on a 50 percent writedown of Greek debt, said a European official who requested anonymity because the deliberations remained private.

Europe’s banks will need to raise 106 billion euros ($147 billion) in fresh capital under tougher rules being introduced in response to the euro region’s sovereign debt crisis, the region’s top banking authority said.

‘Unanswered Questions’

Esprit, which counts Europe as its biggest market, climbed 6.8 percent to HK$12.02. HSBC Holdings Plc, Europe’s largest bank by market value, added 2.4 percent to HK$67.30. Standard Chartered Plc, the U.K.’s No. 3 lender, rose 3.5 percent to HK$181.40.

“We’ve got seemingly an agreement on the haircut for Greek debt,” said Andrew Sullivan, Hong Kong-based principal sales trader at Piper Jaffray Asia Securities Ltd. “It’s a good start certainly but there’s still a lot of unanswered questions. The data shows the U.S. is not likely to go into a recession, and at the same time it’s going to be a slow recovery.”

Exporters advanced after a report showed orders for U.S. durable goods other than transportation gear rose in September by the most in six months, indicating manufacturing will help sustain an economy hobbled by 9.1 percent unemployment.

Li & Fung, which counts the U.S. as its largest market, increased 5.7 percent to HK$14.76. Yue Yuen Industrial Holdings Ltd., a maker of Nike Inc.’s shoes, gained 2.3 percent to HK$22.55.

‘Stimulative Policies’

Chinese lenders and developers extended their rally after Premier Wen Jiabao said yesterday China’s economic policy will be fine-tuned as needed and the industry ministry said it is studying “stimulative policies” for smaller companies. China may “fine-tune” open market operations and relax credit instead of cutting interest rates or reserve ratios, China Securities Journal said in an editorial today.

Industrial & Commercial Bank of China, the nation’s biggest lender, jumped 7.7 percent to HK$4.92. China Construction Bank Corp. climbed 4.6 percent to HK$5.68. Agricultural Bank of China, which reported yesterday a 40 percent increase in third- quarter profit, surged 6.6 percent to HK$3.55.

Brokerages including Guotai Junan Securities Co., Mizuho Securities Asia Ltd. and Barclays Plc said China may cut banks’ reserve requirements before the end of this year.

‘Good Momentum’

State-owned China Resources Land Ltd. climbed 14 percent to HK$11.76, the most since May 2009. China Overseas Land & Investment Ltd., the largest Chinese developer listed in Hong Kong, climbed 12 percent to HK$14.70. The two were the best performers today in the city’s benchmark Hang Seng Index. Evergrande Real Estate Group Ltd., the nation’s second-biggest developer by sales, surged 14 percent to HK$3.45.

Futures on the Hang Seng Index climbed 3.9 percent to 19,774. The HSI Volatility Index fell 6.9 percent to 34.06, indicating options traders expect a swing of 9.8 percent in the Hang Seng Index in the next 30 days.

The Hang Seng Index has “pretty good momentum” in the short-term, with trading volumes beginning to recover, said Tacky Cheng, a technical analyst at Nomura Holdings Inc. in Hong Kong.

Average turnover of shares traded in Hong Kong increased to HK$64.9 billion ($8.4 billion) in the four days ended today, compared with HK$57.3 billion in the past week, according data compiled by Bloomberg. The measure’s 14-day relative strength index remains below the 70, a level considered by some analysts as a sell signal.

--With assistance from Kana Nishizawa in Hong Kong. Editor: Nick Gentle

To contact the reporter on this story: Jonathan Burgos in Singapore at

To contact the editor responsible for this story: Nick Gentle at

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