Bloomberg News

Hong Kong Stocks Rise on Oil, Fewer Suspect Local Loans in China

January 05, 2012

Jan. 5 (Bloomberg) -- Hong Kong stocks rose as oil producers and Chinese lenders advanced, countering declines by property developers on lower sales.

Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, climbed 0.9 percent as the country’s audit office said local governments reduced suspect loans. Cnooc Ltd., China’s largest offshore oil producer, climbed 2.8 percent as crude traded near an eight-month high. China Overseas Land & Investment Ltd. fell 2.5 percent after a report that home sales in Shanghai fell the most in six years.

The Hang Seng Index climbed 0.5 percent to 18,813.41 at the 4p.m. close, with three stocks rising for every two that fell in the 48-member gauge. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 0.2 percent to 10,117.27.

The Hang Seng Index fell 20 percent in 2011 as banks and developers dropped as China introduced lending curbs and raised reserve ratios and interest rates in an effort to fight inflation and cool property prices.

“Hong Kong and China’s markets are very attractive right now based on trough valuations, underperformance last year, poor sentiment and, most importantly, the likelihood of powerful easing,” said Sandy Mehta, Hong Kong-based chief executive officer of Value Investment Principals Ltd. “China has already started some small easing measures, and there’s lot more to come.”

Companies in the Hang Seng Index trade at 9.5 times forecast earnings, down from 14.4 times at the end of 2010, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index trades at 12.1 times.

Lower Irregular Loans

China’s banks advanced after the nation’s audit office said local governments had cleared up almost half of debt on their books previously found to have irregularities.

“The current valuation of China’s banking sector builds in an excessive level of macro hard-landing concern,” said Macquarie Capital Securities Ltd. analysts Victor Wang and Rachel Li in a note dated today. “We believe the macro economy will undergo a soft-landing and there will be further monetary loosening in 2012. We thus expect asset quality concerns to ease going forward.”

ICBC rose 0.9 percent to HK$4.74 after Macquarie named it the top pick among Chinese lenders for 2012. Bank of China Ltd., the country’s No. 4 lender by value, climbed 0.7 percent. Agricultural Bank of China Ltd., the third-biggest, added 1.2 percent to HK$3.40.

Iran Tension

Local governments and the companies they set up to borrow money have so far resolved 259 billion yuan ($41 billion) of their bad debt with measures including land sales and the offer of new collateral, according to data released yesterday on the National Audit Office’s website.

Cnooc led oil producers higher, climbing 2.8 percent to HK$14.64 as oil traded above $103 a barrel on speculation shrinking stockpiles and tension over Iran’s nuclear program will tighten supplies.

PetroChina Co., Asia’s biggest company by market value, increased 1.6 percent to HK$10.38. China Petroleum & Chemical Corp., a refiner and chemical manufacturer, climbed 2.3 percent to HK$8.65.

Property Companies

An index of property developers had the biggest slide on the Hang Seng Index today. Home sales in the city fell 36 percent by value from a year earlier and the number of contracts plunged 54 percent, according to a statement on the government website.

Sun Hung Kai fell as much as 2.9 percent before closing 0.1 percent higher at HK$99. Cheung Kong Holdings Ltd., controlled by billionaire Li Ka-Shing, dropped 0.4 percent to HK$93.45.

China Overseas Land, a state-controlled developer, slipped 2.5 percent to HK$12.48 as new home sales in Shanghai fell to the lowest in six years in 2011, according to a report in the Shanghai Daily citing research by Shanghai Deovolente Realty Co.

“A little more stated willingness to ease would be good for the market at this point,” said Michael Kurtz, Hong Kong- based chief Asia equity strategist at Nomura Holdings Inc. “China’s leadership is likely still concerned at the possibility of a binary swing from subdued activity back to frothy activity as was seen in 2010. They are working very hard to carefully calibrate the message to the domestic market that people shouldn’t expect the kind of unrestrained credit largess that they doled out in 2009.”

S&P 500 Futures

Futures on the S&P 500 fell 0.4 percent today. Stocks in the U.S. erased early losses to leave the Dow Jones Industrial Average at the highest level since July as improving retail and car sales offset lower-than-estimated factory orders.

Esprit Holdings Ltd. led last year’s declines on the Hang Seng Index, falling 73 percent on concern Europe’s failure to contain its debt crisis will further undermine the brand in its biggest market. The stock rose 2.7 percent today.

Futures on the Hang Seng Index climbed 0.2 percent to 18,808. The HSI Volatility Index retreated 3.7 percent to 23.62, the lowest level since Aug. 4, indicating options traders expect a swing of 6.7 percent in the benchmark over the next 30 days.

--Editors: Nick Gentle, Jim Powell

To contact the reporter on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net

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


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