Bloomberg News

Hong Kong Stocks Advance as China Cuts Some Bank Reserve Ratios

November 24, 2011

Nov. 24 (Bloomberg) -- Hong Kong stocks rose after swung between gains and losses, on signs China may further ease policy after cutting reserve requirements for rural lenders. Power producers jumped.

Agile Property Holdings Ltd., a developer in Guangdong province, surged 13 percent, while Agricultural Bank of China Ltd., the nation’s third-biggest lender by market value, gained 2.6 percent. Huaneng Power International Inc., a unit of China’s state electricity producer, gained 5.3 percent after a report the government may raise power prices.

The Hang Seng Index rose 0.4 percent to 17,935.10 at the close, with twice as many stocks advancing as declining in the 46-member gauge. The gauge earlier fell as much as 1.2 percent after Germany failed to get sufficient bids at an auction of benchmark 10-year bunds, boosting concern the region’s debt crisis is worsening. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 1 percent to 9,566.29.

Asian investors are “encouraged by China relaxing the reserve rate requirement, which tend to suggest potential for more easing ahead,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “People hope developers will have more access to cheap funding or people will have access to more mortgages and be able to buy units.”

The Hang Seng Index tumbled 22 percent this year amid concern the U.S. and Chinese economies are slowing and Europe’s debt crisis is worsening. Companies in the index traded at 9.8 times estimated earnings, down from 14.4 times on Dec. 31, according to Bloomberg data. The Standard & Poor’s 500 Index trades at 11.7 times.

Futures on the Standard & Poor’s 500 Index rose 0.7 percent. The index dropped 2.2 percent in New York yesterday after Germany failed to get bids for 35 percent of 10-year bonds on offer at an auction. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose to an all- time high yesterday, stoking concern the region’s debt crisis that began more than two years ago in Greece now threatens Germany.

China Boosts Banks

Agile Property jumped 13 percent to HK$5.46, while Shimao Property Holdings Ltd., which earns all of its revenue on the mainland, rose 5.2 percent to HK$5.88. Agricultural Bank of China Ltd. gained 2.6 percent to HK$3.16.

The People’s Bank of China cut the reserve ratio for more than 20 rural credit cooperatives nationwide by half a percentage point, according to an announcement from its Hangzhou branch in Zhejiang, where small businesses have complained about lack of credit. Bank of America Merrill Lynch predicts officials will lower the ratio for large commercial banks early in 2012.

Huaneng Power increased 5.3 percent to HK$4.20, while Datang International Power Generation Co., a mainland power plant operator, advanced 4.9 percent to HK$2.58.

China may raise electricity prices by year end, Economic Information Daily reported, citing an unidentified source. Prices may increase by about 0.02 yuan a kilowatt-hour, the report said, citing Lin Boqiang, director of the independent China Center for Energy Economics Research at Xiamen University.

Futures on the Hang Seng Index rose 0.4 percent to 17,868. The HSI Volatility Index gained 0.5 percent to 35.74, indicating options traders expect a swing of 10 percent in the benchmark over the next 30 days.

--Editors: Jim Powell, Nick Gentle

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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