Hong Kong stocks rose for a third day after slower-than-forecast U.S. economic growth signaled record stimulus may be maintained and amid speculation that the recent drop in the city’s shares has been overdone.
Li & Fung Ltd. (494), a supplier of toys and clothes to retailers including Wal-Mart Stores Inc., gained 1 percent. Industrial & Commercial Bank of China Ltd., the world’s largest lender, advanced 1.3 percent after China’s central bank moved to stabilize money markets. China Resources Land Ltd., the second-biggest mainland developer traded in Hong Kong, jumped 5.1 percent. China Gas Holdings Ltd. climbed after earnings beat estimates.
The Hang Seng Index (HSI) climbed 0.5 percent to 20,440.08 at the close, capping its longest win streak since May 20. About twice as many shares rose as fell, with volume 20 percent above the 30-day intraday average. The Hang Seng China Enterprises Index (HSCEI) declined 0.1 percent to 9,158.61. The gauge yesterday gained the most since Jan. 2 after valuations dropped to levels not seen since the 2008 global financial crisis.
“Hong Kong and Chinese shares are very cheap,” said Binay Chandgothia, a fund manager at Principal Global Investors in Hong Kong, where he helps oversee $280 billion. “Downside should be limited for Hong Kong unless you get into a full-blown financial crisis. Investor sentiment is fairly weak, markets look oversold short term but for contrarian investors, it’s probably a good time to get in.”
Shares pared gains today as China’s Shanghai Composite Index (SHCOMP) reversed its advance to close 0.1 percent lower, led by coal, copper and small-company shares. Fitch Ratings Ltd. cut its 2013 growth forecast for China, saying a jump in interbank rates this month on tighter monetary conditions is likely to “pose further headwinds.”
“There’s some profit-taking,” with falling Chinese stocks impacting shares in Hong Kong, said Kenny Tang, general manager of AMTD Financial Planning Ltd. in Hong Kong. “Mainland markets are still lacking clear direction and momentum to go up.”
The Hang Seng China Enterprises Index, also known as the H-share index, has fallen more than 20 percent from its Feb. 1 high, meeting some investors’ definition of a bear market. The measure traded at 6.6 times estimated earnings on June 25, 39 percent below its five-year average and the lowest since October 2008, according to data compiled by Bloomberg.
Stocks tumbled after the nation’s overnight repurchase rate rose to a record last week as Premier Li Keqiang seeks to wring speculative lending out of the banking system after credit expansion outpaced economic growth. The People’s Bank of China has since said it provided liquidity to financial institutions to steady money-market rates.
Concern that higher interbank rates would crimp earnings dragged valuations at the nation’s three biggest banks to about one times book level on June 25. Industrial & Commercial Bank of China Ltd. (601398) and China Construction Bank Corp. were trading at 1.3 times on May 20, the recent high for the Hang Seng Index, while Agricultural Bank of China Ltd. was at 1.2 times.
ICBC (1398) shares today climbed 1.3 percent to HK$4.76, its biggest two-day gain since December 2011. China Resources Land gained 5.1 percent to HK$20.35, leading developers higher.
Chinese companies have dropped out of the ranks of the world’s 10 biggest stocks by market value for the first time since 2006 amid a cash crunch, slower growth and the biggest U.S. stock rally in a decade.
PetroChina Co. (PTR:US), a state oil producer that was the world’s sixth-biggest company in May, lost $35 billion in market value this month to $214 billion, dropping to 12th on the list, according to data compiled by Bloomberg based on closing prices yesterday. ICBC fell four places to 13th.
The premium of mainland traded Chinese shares to their underlying Hong Kong-listed stocks retreated the most since December 2011 yesterday after the central bank pledged to maintain monetary stability and the overnight rate fell.
China’s overall economic situation is stable this year, according to a statement posted to the government’s website yesterday after a State Council meeting led by Premier Li Keqiang. China will keep consistent policies to stabilize market expectations, according to the statement.
Profits at China’s industrial companies jumped 15.5 percent in May from a year earlier, the statistics bureau reported today. A 9.3 percent gain was recorded in April.
“The data is encouraging for investors, especially when the stock market is at a very low level at the moment,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “It helps the market to rebound, and there may be some bargain hunting.”
Utilities and information technology companies led the advance among the 11 industries on the Hang Seng Composite Index, the city’s broadest equity measure.
Huaneng Power International Co., a unit of China’s largest electricity producer, gained 6.5 percent to HK$7.66. China Resources Power Holdings Co. increased 6.3 percent to HK$18.36.
China Gas (384) increased 4.8 percent to HK$7.64. Net income for the year ended March jumped 85 percent to HK$1.76 billion ($227 million), beating the HK$1.51 billion average estimate of 11 analysts compiled by Bloomberg.
Futures on the Standard & Poor’s 500 Index (SPX) gained 0.2 percent. The index rose 1 percent yesterday in New York after U.S. gross domestic product expanded a revised 1.8 percent from January through March, down from a prior estimate of 2.4 percent. The Federal Reserve said it will probably taper stimulus in 2013 and halt bond purchases mid-2014 as long as the economy performs in line with projections.
Li & Fung advanced 1 percent to HK$10.58. Man Wah Holdings Ltd., a sofa maker that gets half its sales from the U.S., rose 1.4 percent to HK$9.71.
“There’s less concern that the U.S. economy is growing too fast, leading the Federal Reserve to taper its stimulus,” said Yip. “It helps turn the market sentiment more positive and the Hong Kong market extend its rebound after dropping too much recently.”
Hang Seng Index futures rose 1.2 percent. The HSI Volatility Index slid 0.8 percent to 23.68, indicating traders expect a swing of 6.8 percent for the equity benchmark in the next 30 days.
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