Hong Kong H-Shares Decline After China Econonic Data

Chinese shares listed in Hong Kong retreated for the first time in five days, erasing gains after the release of mainland economic data, with insurers dragging the market lower.

China Life Insurance Co., the nation’s biggest company in the sector, slid 1.2 percent after premium income dropped. Shandong Weigao Group Medical Polymer Co. led declines on a gauge of mainland companies. Sands China Ltd. (1928) dropped 1.4 percent before the casino operator’s parent reports earnings today. China National Building Material Co. gained 3.2 percent after the cement maker’s parent was among state companies the government selected for reform trials.

The Hang Seng China Enterprises Index (HSCEI), also known as the H-share index, fell 0.1 percent to 10,475.38 at the close in Hong Kong. The gauge reversed a 0.4 percent advance even after China’s economic growth beat analyst estimates. The Hang Seng Index (HSI) gained 0.3 percent to 23,523.28, with trading volume 28 percent lower than the 30-day average.

“After the Chinese data, the market retreated from the day’s high,” said Alex Wong, asset-management director at Ample Capital Ltd. “Investors are cautious because no one is betting big and we are not seeing any substantial improvement in turnover.”

China’s second-quarter gross-domestic product rose 7.5 percent from a year earlier, compared with analyst projections for 7.4 percent growth. Industrial production increased 9.2 percent in June from 8.8 percent in May, beating expectations for a 9 percent gain.

Relative Value

The Hang Seng Index advanced 0.9 percent this year, reversing losses amid signs of stabilization in China’s economy after the government rolled out targeted stimulus. The gauge traded at 11 times estimated earnings today, compared with 7.3 for the H-share index and 16.6 for the Standard & Poor’s 500 Index yesterday.

Insurers were the biggest drag on mainland shares listed in Hong Kong. China Life slid 1.2 percent to HK$20.70. The company reported first-half premium income of 196.9 billion yuan ($31.7 billion) compared with 202.6 billion yuan a year earlier. China Pacific Insurance (Group) Co. slid 2.8 percent to HK$27.35.

Shandong Weigao sank 3.9 percent to HK$21.15, the steepest drop on both the H-share gauge and the Hang Seng Index. Sands China fell 1.4 percent to HK$56.45 before parent Las Vegas Sands Corp. reports second-quarter earnings today.

Reform Trials

China yesterday announced it had picked six state-owned companies for trials allowing more independent business management. China National Building Material Group Corp. and China National Pharmaceutical Group Corp. will explore mixed-ownership structures and board-led human resources management, the State-Owned Assets Supervision and Administration Commission said. State Development & Investment Corp. and Cofco Corp. were selected to test means of improving the efficiency and returns of investments.

Units of the companies chosen for the reform program jumped in Hong Kong, with China National Building Material (3323) rising 3.2 percent to HK$7.80. Shopping-center operator Cofco Land Holdings Ltd. gained 5 percent to HK$2.09. China Securities Index Co. said it will introduce a state-owned enterprises reform gauge on Aug. 7.

Huadian Power International Corp. (1071) surged 11 percent to HK$5.76. The mainland utility said it expects first-half profit to jump as much as 65 percent on increasing electricity generation.

Stock Valuations

Futures on the S&P 500 climbed 0.3 percent today. The underlying gauge slid 0.2 percent yesterday after the Federal Reserve said valuations among social-media and biotechnology companies were overstretched. Pandora Media Inc., which trades at more than 160 times projected earnings, and Facebook Inc., which doubled in 2013, dropped. JPMorgan Chase & Co. and Goldman Sachs Group Inc. advanced after posting better-than-expected profit.

The central bank must press on with monetary stimulus as “significant slack” remains in labor markets and inflation is still below the target, Fed Chair Janet Yellen said in semi-annual testimony to the Senate Banking Committee. Benchmark interest rates could be raised sooner than expected should the job market continue to improve faster than anticipated, she said.

The Hong Kong dollar fell to HK$7.7512 per dollar today, the weakest since July 4. The currency has held near the strong end of its permitted range of HK$7.75 to HK$7.85 since July 1, prompting the Hong Kong Monetary Authority to buy dollars to defend the peg.

Hong Kong’s government in a report yesterday said the majority polled in a public consultation backed China’s position that candidates for the 2017 chief executive election must be nominated by a committee and be Chinese patriots. The report doesn’t reflect the stance of those who marched in July 1 demonstrations and the almost 800,000 people who voted in an unofficial referendum last month for the public to nominate candidates, according to Emily Lau, chair of the Democratic Party of Hong Kong.

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, Chan Tien Hin

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