Chinese stocks trading in Hong Kong rallied the most in 10 months after growth in mainland service industries accelerated and the risk of protests in Hong Kong’s financial district eased.
The Hang Seng China Enterprises Index (HSCEI), or H-shares gauge, surged 3.2 percent to 11,312.54 at the close, the biggest gain since Nov. 18, when shares rallied after China pledged the biggest package of reforms since the 1990s. The Hang Seng Index jumped 2.3 percent, while the Shanghai Composite Index rose 1 percent. Financial companies led gains in Hong Kong, with PICC Property & Casualty Co. and Industrial & Commercial Bank of China Ltd. (601398) surging at least 4.6 percent. China Mobile Ltd. rose 3.8 percent as the China Daily said the company started taking preorders for Apple Inc.’s iPhone 6.
A rebound in services bolsters optimism the government is succeeding in shifting its economy away from exports and investment toward domestic consumption. The non-manufacturing purchasing managers’ index rose to 54.4 in August from 54.2 in July, while a survey from HSBC Holdings Plc and Markit Economics posted its highest reading since March 2013.
“The good sentiment in the market continues today after the release of a solid non-manufacturing PMI,” Gerry Alfonso, a trader at Shenyin & Wanguo Securities Co., said by e-mail. “Some market participants interpret solid non-manufacturing PMI figures as an indication that the economic reform is yielding the desired outcomes.”
Rallies for financial and energy companies helped the H-shares gauge climb to its highest close since Dec. 10. Yanzhou Coal Mining Co. gained 3.3 percent, while China Minsheng Banking Corp. surged 4.4 percent. The H-shares measure trades at 7.4 times estimated earnings, compared with 11 for the Hang Seng Index and 8.3 for the Shanghai Composite.
“Valuations of the Chinese banks have been quite low,” said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. “Investors are more positive as they think banks’ asset quality is still quite high. The Shanghai-Hong Kong Stock Connect also helps with their performance as the plan shows higher demand for financial services in the future,” he said, referring to the proposed exchange link that is scheduled to start next month.
A rebound in services growth helps offset a pullback in manufacturing and a property slump that had raised concern among some economists the government would miss its expansion target of about 7.5 percent this year. China’s weakening real-estate market has weighed on related industries as new home prices fell and developers missed sales targets.
The HSBC gauge surged to 54.1 in August from 50 in July. Readings above 50 for both gauges indicate expansion. Services accounted for 46.6 percent of gross domestic product in the first half of 2014, 1.3 percentage points higher than the same period a year earlier, the statistics bureau said in July.
The Hang Seng China AH Premium Index of dual-listed companies fell 2 percent to 92.61, its biggest drop since Nov. 18, signaling a wider discount on mainland shares. Trading volumes surged at least 30 percent above the 30-day average in both Hong Kong and Shanghai. The CSI 300 Index gained 0.9 percent, as shipping companies advanced. China Shipping Container Lines Co. rallied 5 percent.
Hong Kong’s benchmark index climbed to its highest close since May 2008 as the risk of the city’s financial district being paralyzed by a mass sit-in diminished. Henderson Land Development Co. jumped 6.2 percent. China Mobile posted its biggest gain since Aug. 15 after the China Daily said a campaign attracted over 33,000 orders for the Apple smartphone.
A pro-democracy leader said the strategy of threatening civil disobedience had failed to persuade China to make concessions on changes to the city’s leadership election. Benny Tai Yiu-Ting, founder of Occupy Central with Love and Peace, had earlier predicted at least 10,000 would move to the streets and said activists would brave water cannon and tear gas to fight for genuine democracy.
“We don’t expect Occupy Central will be as severe as what we expected at the beginning, and that does help investor sentiment,” said Louis Tse, a Hong Kong-based director at VC Brokerage Ltd.
The Shanghai Composite extended gains to a fourth day as media companies advanced on the prospect of consolidation. Zhe Jiang Daily Media Group surged 5.9 percent after the Shanghai Securities News reported Shanghai Media Group Inc. plans to merge its units, BesTV New Media Co. and Shanghai Oriental Pearl Group Co., to set up a listed company with market value of about 100 billion yuan ($16.3 billion).
The Shanghai index has rebounded 15 percent since mid-March on prospects China will reduce government ownership of state-owned enterprises and the link between exchanges in Hong Kong and Shanghai will fuel inflows.
More money flowed last month into China and Russia exchange-traded funds than any other emerging markets. U.S.- based ETFs focused on China attracted $944 million, or 10 percent of their market value, according to data compiled by Bloomberg.
The yuan advanced the most in a week after today’s data, while benchmark money-market rate declined for a fourth day.
“The services PMIs have eased concerns over China’s growth momentum, supporting a stronger yuan,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong. “Funds are getting into Chinese assets, as you can see from the stocks rally.”
By WEIYI LIM and KANA NISHIZAWA September 3, 2014 in Bloomberg