Hong Kong Stocks Rebound as H-Shares Surge With Li & Fung

Hong Kong stocks rose, with the benchmark index climbing from an eight-month low, as Li & Fung Ltd. soared. Chinese shares traded in the city rebounded after entering a bear market.

The Hang Seng Index (HSI) added 1.2 percent to 21,436.70 at the close in Hong Kong, paring this week’s drop to 0.5 percent. Li & Fung, the world’s largest supplier of clothes and toys to retailers, surged 21 percent, its biggest gain in five years, after announcing plans to spin off and list its branding and licensing business. Coal producers led gains on the Hang Seng China Enterprises Index (HSCEI) of mainland companies, which advanced 2.4 percent to 9,427.33, its biggest advance in a month.

“This is a short covering-led recovery after shares fell a lot,” said Alex Wong, a Hong Kong-based director of asset management at Ample Capital Ltd. “We may see one or two more days of upside but China’s fundamentals are still weak. We weren’t falling for nothing.”

The Hang Seng China gauge has slumped 13 percent this year, the biggest drop among global benchmark indexes, amid data that showed falling exports, weaker manufacturing and slower retail sales in China.

The measure, which yesterday capped a 20 percent drop from Dec. 2 to reach a level some investors consider a bear market, was valued at 1.1 times net assets. That was the biggest discount since September 2003 to the MSCI All-Country World Index of developed and emerging shares, which had a ratio of 2.

Earnings Season

Li & Fung (494), Henderson Land Development Co. and PetroChina Co. rose today after announcing results, while Kunlun Energy Co. slid 3.4 percent after its profit disappointed.

Of 109 companies in the Hang Seng Composite Index that reported annual earnings this month for which Bloomberg had estimates, 53 percent exceeded projections. More than 300 businesses on the gauge are scheduled to release results in March, according to data compiled by Bloomberg.

Local government officials in Fenghua city, near Ningbo, are in talks with commercial banks owed money by Zhejiang Xingrun Real Estate Co. and “trying very hard” to solve the problem, Xu Mengting, director of the news office of the city’s government, said in an interview today.

The closely-held developer was this week said to have collapsed with $562 million of debt, adding to concern about strains in the nation’s real estate sector and financial system. This comes after Shanghai Chaori Solar Energy Science & Technology Co. failed to make a full coupon payment this month, China’s first onshore corporate-bond default.

“If the government is really trying its best to solve this problem, the market will see short-covering and have a lift,” said Steven Leung, director of institutional sales at UOB-Kay Hian Holdings Ltd. in Hong Kong. “We’re seeing an impact on property shares.”

Developers Rally

China Overseas Land & Investment Ltd., the largest mainland property company listed in Hong Kong by market value, rose 7.1 percent to HK$19.44, while China Resources Land Ltd. (1109) advanced 6.5 percent to HK$16.10.

China’s regulator is reviewing financing applications from “many” mainland-listed Chinese property developers, Shanghai Securities News reported, without citing anyone. A gauge of property companies listed in the city surged as much as 4.1 percent, while the Shanghai Composite Index climbed 2.7 percent to head for the biggest rally in four months.

Stocks are also gaining on speculation the regulator will release details about preferred shares after the market closes today, according to Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai.

Profit Rises

Li & Fung’s full-year net income increased 17 percent to $725 million in 2013, beating the $594.2 million average of 14 analysts’ estimates compiled by Bloomberg.

Henderson Land (12), the Hong Kong builder controlled by billionaire Lee Shau-kee, added 3.4 percent to HK$42.10 after its full-year earnings climbed 26 percent.

PetroChina, the country’s biggest oil and gas producer, gained 3.2 percent to HK$7.86 after saying it’s cutting spending, and net income for last year rose 12 percent to 129.6 billion yuan ($20.8 billion).

Futures on the Standard & Poor’s 500 Index rose 0.2 percent after the gauge gained 0.6 percent yesterday as economic data fueled optimism in the economy. Shares dropped after Federal Reserve Chair Janet Yellen said March 19 the central bank’s stimulus program could end this fall and benchmark interest rates could rise about six months later.

The China Beige Book survey, published by New York-based CBB International, signaled the nation’s economy slowed this quarter, with industries including retail and mining showing weaker revenue growth. Loans through non-traditional channels became more expensive, it said.

Goldman Sachs Group Inc. this week cut its estimate for China’s economic expansion this year to 7.3 percent from 7.6 percent. The nation’s official 2014 growth target is 7.5 percent, which would be the slowest pace since 1990.

Kunlun (135) dropped to HK$13 after its full-year net income of HK$6.85 billion ($882 million) missed the average analyst estimate of HK$7.35 billion.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net Matthew Oakley

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