Bloomberg News

Hong Kong H-Shares Cap Steepest Jump Since 2011 on China Reforms

November 18, 2013

Hong Kong stocks gained amid heavy volume, with gauge of Chinese shares listed in the city capping the biggest one-day gain since 2011, after China outlined sweeping reforms. Shares of insurers to baby products surged.

China Mengniu Dairy Co. (2319) jumped 4.8 percent after policy makers pledged to ease the one-child policy boosted prospects for infant-formula sales. Citic Securities Co., the nation’s biggest-listed brokerage, surged 13 percent on optimism reforms will lift the ban on mainland initial public offerings. Ping An Insurance (Group) Co. led gains on the Hang Seng Index on expectations the policy shift will benefit health and pension insurers, according to a note from Credit Suisse AG.

The Hang Seng China Enterprises Index, also known as the H-share index, gained 5.7 percent to 11,307.33 at the close in Hong Kong, the biggest increase since December 2011. The Hang Seng Index (HSI) gained 2.7 percent to 23,660.06, with all shares on the 50-member gauge advancing on volume almost triple the 30-day average.

“They’re trying to transform the Chinese economy from a cheap labor producer of exports,” said Uwe Parpart, Hong Kong-based chief strategist with Reorient Group Ltd. “Major beneficiaries will be wide variety of stocks that relate to consumption.”

The Hang Seng Index advanced 19 percent from this year’s low on June 24 on signs China’s economy is strengthening and amid optimism the U.S. will maintain stimulus. Hong Kong’s benchmark index traded at 11.3 times estimated earnings, compared with 16.3 for the S&P 500 on Nov. 15.

Sweeping Measures

China pledged to allow more private investment in state-controlled industries, loosen its one-child policy and expand farmers’ land rights, according to a Communist Party statement published by Xinhua News Agency on Nov. 15. The document, covering 60 measures, follows a communique issued Nov. 12 after a four-day party conclave in Beijing that omitted details for reforming the world’s second-largest economy.

China shares are on the cusp of a historic bull run, according to a research note from Jefferies Group LLC. Comprehensive reform decisions from the plenum impressed “tremendously,” with a significance rivaling that of Deng Xiaoping declaring the opening of China in 1978, analysts led by Christie Ju wrote.

Ping An rose 9.5 percent to HK$69.50. China Life Insurance Co., the nation’s biggest insurer, surged 8.7 percent to HK$23.10. The stocks were among the most actively traded by value on the Hang Seng Index. China reforms will promote development of the industry as well as market-based pricing, Credit Suisse wrote in a note today.

Dairies Advance

China Mengniu gained 4.8 percent to HK$35.10. China Modern Dairy Holdings Ltd. (1117), a raw milk producer, gained 5.3 percent to HK$4.21. Makers of baby products jumped after China’s Communist Party pledged to allow couples to have two children if either parent is an only child. Under the current family-planning policy, couples are allowed to have a second child if both parents are only children.

Citic securities surged 13 percent to HK$18.74, while brokerage China Galaxy Securities Co. (6881) soared 7.8 percent to HK$5.84. China Everbright Ltd. increased 4.7 percent to HK$11.68.

Brokerages gained as policy statement posted on the Chinese government’s website said it will seek to “push forward reform for a registration system” on IPOs. Jefferies recommended the sector.

Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The equity gauge climbed 0.4 percent on Nov. 15, as weaker industrial output added to speculation the Federal Reserve will maintain the pace of asset purchases. Janet Yellen, nominated to lead the central bank, said last week she would not withdraw stimulus too early from an economy that is performing well below potential.

Stimulus Outlook

Data on Nov. 15 showed factory activity in the New York region unexpectedly contracted in November. A separate report showed industrial production in the U.S. fell 0.1 percent in October as mining and utilities output declined. Economists forecast on Nov. 9 the Fed will delay tapering until March.

Futures on the Hang Seng Index rose 2.9 percent to 23,668. The Hang Seng Volatility Index surged 11 percent to 17.59, the steepest gain since Sept. 30, indicating traders expect the benchmark equity index to swing 5 percent 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: Sarah McDonald at smcdonald23@bloomberg.net


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