Hong Kong stocks rose, sending the benchmark gauge to its biggest gain in more than two months, as China International Capital Corp. recommended buying insurers and JPMorgan Chase & Co. predicted a rally for Chinese shares.
Ping An Insurance (Group) Co. and China Life Insurance Co. both surged 5.1 percent, leading gains on the Hang Seng Index. (HSI) PetroChina Co. advanced 1.4 percent after its parent found a natural gas reserve, while Cnooc Ltd. added 4.8 percent. China’s stocks will probably rally as much as 20 percent within weeks as gauges of economic growth stabilize and valuations rise from historic lows, JPMorgan said.
The Hang Seng Index advanced 1.8 percent to 21,962.98 at the close in Hong Kong, after valuations on the gauge fell to the lowest level in more than a decade versus developed-nation shares. The Hang Seng China Enterprises Index (HSCEI), also known as the H-share index, jumped 2.5 percent to 9,856.85. Today’s gains on the two measures were the most since Nov. 18.
“Market may have short bias and as a result of that there was some short covering taking place,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management, which oversees about $60 billion. “Old China stocks like banks and energy have done very poorly over the last six weeks. When sentiment changes in favor of the Chinese stock market, usually those stocks would do very well because most investors tend to be underweight.”
The Hang Seng Index dropped to 9.8 times reported earnings at the end of last week, the widest discount versus the MSCI World Index since May 2003, data compiled by Bloomberg show. The gauge has fallen 5.8 percent this year as an official manufacturing index for January signaled a slowdown in the world’s second-largest economy, while the Hang Seng China measure slumped 8.9 percent.
“We recommend a trading buy of China equities, based on seasonality and all-time low valuations,” Michael Yu, a strategist at JPMorgan in Hong Kong, wrote in a report dated yesterday. “We expect a 15-20% market rebound in the coming weeks, once growth stabilizes due to seasonality and the market’s focus switches to structural reforms.”
Ping An and China Taiping Insurance Holdings Co. were CICC’s top picks as major companies in the industry may post more than 40 percent growth in life premiums for January, analysts Tang Shengbo and Zhang Yu wrote in a report today.
Ping An climbed to HK$63.65. China Taiping (966), the first overseas-listed Chinese insurer, jumped 9.5 percent to HK$14.82, the most since May 28. China Life advanced to HK$21.60.
Industrial & Commercial Bank of China Ltd., the nation’s largest lender, advanced 2.4 percent to HK$4.75 and China Construction Bank Corp., the No. 2, gained 3.1 percent to HK$5.34. JPMorgan said Chinese banks will get a boost from low valutions, large dividends and high return on equity. The two lenders traded at less than 5 times estimated profit. A measure of financial companies had the second-biggest gain on the Hang Seng Composite Index.
Energy companies rallied after China National Petroleum Corp., the country’s biggest oil and natural gas producer, discovered a natural gas reserve that is big enough to supply the nation’s needs for two years. The find in Anyue county in the southeastern province of Sichuan has a reserve of 440 billion cubic meters, CNPC said.
CNPC’s listed arm, PetroChina Co., gained 1.4 percent to HK$7.78. CLP Holdings Ltd. (2), Hong Kong’s biggest electricity provider, rose 2.7 percent to HK$59.60, its steepest advance since September 2011. CLP and PetroChina agreed in May to establish a joint venture to manage natural gas imports to Hong Kong. Cnooc advanced to HK$12.68.
China’s official PMI (CPMINDX) for January dropped to a six-month low of 50.5 as output and orders slowed amid government efforts to rein in excessive credit, the statistics bureau said Feb. 1. The central bank may announce new lending and money supply figures as early as today. Foreign trade data are due tomorrow and inflation on Feb. 14.
Futures on the Standard & Poor’s 500 Index added 0.5 percent today after the gauge climbed 0.2 percent yesterday. Federal Reserve Chairman Janet Yellen delivers her first semi-annual monetary-policy testimony today as investors weigh the pace of stimulus reductions against data this week that may show U.S. retail sales stalled while jobless claims declined.
Gold producers rallied after price of the precious metal jumped to the highest level since November. Zijin Mining Group Co., China’s largest gold producer, jumped 8.1 percent to HK$1.74, while Zhaojin Mining Industry Co. surged 12 percent to HK$5.04.
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