Bloomberg News

Hong Kong H Shares Advance After China Growth Meets Estimates

July 15, 2013

Hong Kong stocks rose, with a gauge of Chinese companies extending the biggest weekly gain since May, after mainland economic growth met analysts’ estimates.

Angang Steel Co. (347), the largest steelmaker traded in Hong Kong, jumped 8.2 percent after saying it swung to a first-half profit. BYD Co., a maker of electric vehicles, surged 11 percent after China’s car sales rose and the nation said it aims to accelerate energy-saving measures. Tencent Holdings Ltd. (700), China’s No. 1 Internet company, gained 3.7 percent after the State Council said upgrading communications was a priority.

The Hang Seng China Enterprises Index, also known as the H-share index, climbed 0.1 percent to 9,445.56 at the close in Hong Kong. The gauge last week surged the most in two months. The Hang Seng Index increased 0.1 percent to 21,303.31, with almost an equal number of shares declining as advancing, with volume 46 percent lower than the 30-day average.

“It’s difficult to see a significant rebound in GDP growth in the foreseeable future,” said David Gaud, a senior money manager at the asset-management unit of Edmond de Rothschild Group in Hong Kong. “If we are to find a floor around 7.4 percent to 7.5 percent, that should be taken relatively positively. For H-shares, the market will definitely react positively because earnings momentum is the ultimate driver.”

China’s economy grew 7.5 percent in the second quarter from a year earlier, the National Bureau of Statistics said in Beijing today, meeting the estimate in a Bloomberg News survey. Growth in the prior quarter was 7.7 percent. Industrial production (CHVAIOY) slowed, rising 8.9 percent in June from a year earlier, as retail sales gained 13.3 percent.

Economic Slowdown

The Hang Seng Index posted its biggest monthly decline in a year in June, slumping 7.1 percent as China’s money-market rates surged to a record amid signs of economic slowdown. Goldman Sachs Group Inc. and HSBC Holdings Plc pared their 2013 growth projections for China to 7.4 percent, below the state target. Shares also dropped after the Federal Reserve signaled it may dial down stimulus if the U.S. economy shows sustained improvement.

“Even though the slowdown may continue, investors can anticipate better economic performance next year and therefore equities can still do well,” said Victoria Mio, chief investment officer for China at Robeco Hong Kong Ltd., whose parent oversees about $247 billion.

China’s official Xinhua News Agency corrected a report that cited Finance Minister Lou Jiwei as saying the country’s growth target this year is 7 percent, a figure lower than the official goal of 7.5 percent set in March. In an English-language story released July 13, Xinhua said it corrected a quote attributed to Lou to “there is no doubt that China can achieve this year’s growth target of 7.5 percent.”

Growth Target

“What happened with the change in communication from what Lou said is interesting in the sense that he initially spoke his mind, he probably spoke up about the real number,” said Rothschild’s Gaud. “But now they came back and said this was 7.5 percent, it tells us that they are committed, that there’s probably a growing commitment to maintain that level and not go much further below.”

Shares on the benchmark Hang Seng Index (HSI) traded at 10.1 times estimated earnings, compared with 15.2 times for the Standard & Poor’s 500 Index and 13.3 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

The Hang Seng China Enterprises Index, also known as the H-share index, fell 23 percent from a Feb. 1 high, meeting some investors’ definition of a bear market. The measure traded at 1.14 times the value of net assets, compared with its five-year average of 1.79.

Vehicle makers climbed after data showed China car sales in June rose 11.4 percent from a year earlier to 240 billion yuan ($39.1 billion), the highest monthly total this year.

Automakers Advance

BYD jumped 11 percent to HK$31.95. Great Wall Motor Co., which last year signed an agreement with Coda Holdings to develop battery-powered cars, climbed 2.3 percent to HK$37.45. Tianneng Power International Ltd. (819), a battery maker, surged 25 percent to HK$3.65, its steepest surge on record.

Shares also rose after the State Council said in a statement that China aims to speed development of its energy-saving and environmental protection industry, citing a Cabinet meeting at which Premier Li Keqiang presided. The government and public-transportation sector should take the lead in utilizing new-energy vehicles, according to the statement.

Tencent rose 3.7 percent to HK$321.40, the biggest gain on the Hang Seng Index. Private investment in the telecommunications industry and development of Internet infrastructure will be accelerated, China’s State Council said July 12. The government will also push to issue 4G wireless licenses by the end of this year.

H Shares

Today is the 20th anniversary of the first listing of a mainland incorporated stock in Hong Kong. Foreigners have since earned less than 1 percent a year investing in Chinese stocks, a sixth of the return on U.S. Treasuries in the same span. The MSCI China Index has gained about 14 percent, including dividends, since Tsingtao (168) Brewery Co. became the first Chinese company to sell H shares in the city in July 1993. Tsingtao jumped 3.3 percent to HK$57.65 today.

Angang Steel jumped 8.2 percent to HK$4.22. Its first-half profit was 702 million yuan compared with a loss of 1.98 billion yuan a year earlier, the company said in a preliminary earnings statement.

Every sector on the Hang Seng Composite Index advanced last week, led by industrial goods and energy companies amid speculation China’s government will act to shore up growth the economy slows too much. Resources and energy companies have led declines this year.

Earnings Season

Futures on the S&P 500 rose 0.2 percent. The U.S. equity gauge climbed 0.3 percent on July 12 as better-than-estimated bank earnings outweighed a reduced profit forecast from United Parcel Service Inc.

Hang Seng Index futures were little changed at 21,215. The HSI Volatility Index dropped 2.8 percent to 20.60, indicating traders expect a swing of 5.9 percent for the equity benchmark in the next 30 days.

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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