Hong Kong Stocks Erase 2014 Losses on China Economic Optimism

Hong Kong stocks rose, with the benchmark index erasing this year’s loss, amid optimism that Chinese policy makers will succeed in countering the nation’s economic slowdown.

The Hang Seng Index (HSI) added 0.9 percent to 23,315.74 at the close today, taking its gain this year to less than 0.1 percent. The index hasn’t closed above its 2013 year-end level since the first trading day this year. The Hang Seng China Enterprises Index, also known as the H-share index, rose 1.1 percent to 10,518.80 today, paring its drop in 2014 to 2.7 percent.

The Hong Kong stock benchmark rebounded 10 percent from this year’s low in March as manufacturing reports signal Asia’s biggest economy is stabilizing after growth weakened to 7.4 percent last quarter from a year earlier, the slowest pace since 2012 and below the official annual target of 7.5 percent. The government has since announced a series of policies to support the economy, including reserve-ratio cuts for regional lenders and directives to accelerate home-loan approvals.

“China is restarting its stimulus program and boosting investor sentiment,” said Benjamin Tam, a Hong Kong-based portfolio manager at IG Investment Ltd. “The market is hoping the government will launch more stimulus later on and drive up growth in the second half.”

The People’s Bank of China yesterday announced a 0.5 percentage-point cut in reserve requirements for some banks aimed at supporting smaller companies and agricultural borrowers. The reduction will take effect June 16. The move will add 70 billion yuan ($11.2 billion) to the financial system and should help ease credit conditions, Qu Hongbin, an economist at HSBC Holdings Plc, wrote in a note dated yesterday.

Economic Support

Other stimulus measures include railway and housing spending and tax relief for small businesses, outlined by the State Council in April. Reforms announced to allow cross-border equity trading between Shanghai and Hong Kong helped boost Hong Kong Exchanges & Clearing Ltd. 14 percent this year.

The Hang Seng Index dropped as much as 9.1 percent this year and remains the second-worst performer among developed markets even after its rebound. The equity gauge traded at 10.8 times estimated earnings today, compared with 16.5 for the Standard & Poor’s 500 Index yesterday.

Nine Dragons Paper Holdings Ltd. (2689) surged 6.6 percent to HK$5.49 today after Citigroup Inc. said the reserve ratio reductions will help the paper-making industry by improving liquidity. Bank of Communications Co. rose 1.1 percent, while Agricultural Bank of China Ltd. advanced 1.7 percent.

China Inflation

The nation’s consumer prices rose 2.5 percent last month from a year earlier, the National Bureau of Statistics said today. Analysts surveyed by Bloomberg had projected a 2.4 percent rise. The government has set a full-year target of 3.5 percent inflation, which leaves room for monetary easing. Reports are due this week on new loans, money supply, retail sales and industrial output.

Hong Kong property companies Henderson Land Development Co. and Sino Land Co. led gains on the Hang Seng Index this year, each climbing 19 percent. Gains were spurred by optimism the city’s government may relax the timeline on the double stamp duty refund, giving buyers will more time to sell their existing homes to qualify for a refund of the additional tax from a new property purchase.

Casino operators were among the worst performers this year on the Hang Seng Index as revenue growth slowed last month, and as speculation mounted China will crack down on illegal fund transfers and tighten visa rules. Galaxy Entertainment Group Ltd., controlled by billionaire Lui Che-woo, tumbled 20 percent, while Sands China Ltd. slumped 18 percent.

SJM Holdings Ltd. (880) today slid 5.2 percent after Macau’s biggest casino operator said a regulator is clamping down on China UnionPay Co.’s debit cards on gaming floors. Deutsche Bank AG lowered its estimate for annual Macau casino revenue growth to 12 percent from 15 percent on VIP risks and downgraded SJM and Wynn Macau Ltd. to hold from buy, Hong Kong-based analyst Karen Tang wrote in a note yesterday.

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 Jim Powell, Tom Redmond

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