Hong Kong Stocks Rise as Hang Seng Index Pares Monthly Decline

Hong Kong stocks advanced for a fourth straight day, with the Hang Seng Index paring its biggest monthly drop since May last year.

The Hang Seng Index increased 0.5 percent to 20,555.23 at 9:35 a.m. local time. About twice as many shares rose as fell. The Hang Seng China Enterprises Index (HSCEI), the world’s third-worst performing major gauge this quarter, climbed 0.4 percent to 9,194.63. The measure is headed for its worst first half of a year since 2008.

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.

China’s Shanghai Composite Index (SHCOMP) is headed for its biggest monthly retreat since 2009. Fitch Ratings Ltd. yesterday 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.”

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. and China Construction Bank Corp. were trading at 1.3 times on May 20, the recent high for the Hang Seng Index (HSI), while Agricultural Bank of China Ltd. was at 1.2 times.

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.

Hang Seng Index futures rose 0.2 percent. The HSI Volatility Index slid 3.1 percent to 22.94, indicating traders expect a swing of 6.6 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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