Dec. 7 (Bloomberg) -- China Railway Group Ltd., the world's third-biggest construction company, rose 27 percent in its Hong Kong debut as investors bet the country's investment in transport systems will boost earnings.

The stock gained HK$1.58 to HK$7.36 on the exchange, higher than its sale price of HK$5.78. Earlier in the week, the company's Shanghai shares surged 69 percent on their Shanghai stock exchange debut. The Beijing-based company has a market value of about $23 billion.

The stock gains suggest investors are picking companies with better growth prospects after Sinotrans Shipping Ltd. and Sinotruk (Hong Kong) Ltd. both dropped more than 10 percent in their Hong Kong trading debuts last month. China is investing 5.05 trillion yuan ($680 billion) on transport systems by 2010.

``This sector is the most resilient and directly exposed to China's economic growth, and it's unaffected by the global economic downturn,'' said Mona Chung, who manages about $2.5 billion at Daiwa Asset Management in Hong Kong. ``China is still growing, and it's expected GDP growth will remain at about 10 percent for the next two years.'' She didn't buy the shares.

China Railway is raising funds for equipment, capacity expansion and technology upgrades as investment in new railways, roads and subways brings it more orders. Its Dec. 3 initial public offering in Shanghai was the world's largest public stock offering by an engineering and construction company since at least 1999, according to Bloomberg data.

China Railway's Hong Kong shares trade at 44 times earnings, compared with 74 times for Beijing-based China Communications Construction Co., the world's largest builder of ports.

IPO Flops

Sinotrans Shipping tumbled 13 percent on its Nov. 23 Hong Kong trading debut. Sinotruk, China's largest maker of heavy trucks, plunged 16 percent on Nov. 28. The Hong Kong market had its worst monthly drop in three and a half years last month, reducing demand for IPOs.

The Hang Seng Index has since gained 3.8 percent in December. The Dow Jones Industrial Average rose 1.3 percent yesterday on expectations a government plan to limit subprime mortgage defaults will boost bank profits and ease the housing slump.

``They're just very lucky today, because the U.S. market is going up,'' said Liu Yang, who manages $5 billion of China investments at Atlantis Investment Management in Hong Kong, including shares of China Railway. ``The others were unlucky because the market sentiment was very poor. Stock moves nowadays are all dominated by U.S. sentiment.''

Dual Share Sale

China Railway raised HK$19.22 billion ($2.5 billion) in the Hong Kong share sale, according to statements to the stock exchange. The company raised 22.4 billion yuan in Shanghai.

The company, established in September, is the publicly traded unit of China Railway Engineering Corp., the world's third-largest construction company by contract value last year, according to a draft of the company's share-sale documents.

China, with 78,000 kilometers (48,000 miles) of rail, has the world's third-biggest network after the U.S. and Russia. Its projected spending on railways in the five years to 2010 is more than triple that of the previous five years, according to the share-sale documents.

Railway builders and operators will need to raise as much as 1 trillion yuan from capital markets through the sale of stock or debt to fund the expansion, Cao Yuanzheng, chief economist at share-sale arranger BOCI International Holdings Ltd., said on April 18.

To contact the reporter on this story: Lee Spears in Beijing at lspears2@bloomberg.net.

Last Updated: December 7, 2007 03:36 EST