Hong Kong H-Shares Rebound From Biggest Loss in 3 Weeks

Mainland Chinese stocks traded in Hong Kong rose, rebounding from the biggest drop in three weeks, as financial companies advanced. China Everbright (257) Ltd. jumped on its parent’s plan for an ownership revamp.

China Everbright surged 15 percent after saying its parent, China Everbright Group Ltd., will become a joint stock company instead of a “state-wholly-owned enterprise.” First Shanghai Investments Ltd. soared 18 percent as brokerages rallied amid speculation the government is relaxing rules to help brokerages free up capital for expansion. China Coal Energy Co. jumped 6.2 percent as coal producers climbed.

The Hang Seng China Enterprises Index (HSCEI) of mainland shares traded in the city, also known as the H-share index, rose 1 percent to 11,088.96 at the close in Hong Kong. The measure dropped 1.3 percent on Aug. 1, its biggest loss since July 9. The Hang Seng Index (HSI) added 0.3 percent to 24,600.08 today amid volume 18 percent less than its 30-day average.

“Fund flow is still favorable for the Asian market,” said Ben Kwong, a director at Hong Kong-based broker KGI Asia Ltd. “Last Friday’s drop in Hong Kong was a long-awaited correction because it was already seriously overbought. The market is relatively firm.”

The H-share gauge entered a bull market last week after rising more than 20 percent from its March low as policy makers took steps to bolster China’s economy by cutting reserve requirements for some banks and loosening property curbs. The gauge trades at 7.7 times estimated earnings, compared with multiples of 11.4 for the Hang Seng Index and 16.1 for the Standard & Poor’s 500 Index (SPX) at the last close.

Services Industry

China’s non-manufacturing Purchasing Managers’ Index fell to 54.2 in July from 55 in June, a report showed yesterday. The data highlights the danger a correction in the property market poses to China’s economic growth and contrasts with a government report last week that showed manufacturing expanded at the fastest pace in more than two years. A reading above 50 indicates expansion.

The People’s Bank of China warned in its second-quarter monetary policy report on Aug. 1 that the country’s credit and money supply have increased rapidly and indicated that it will refrain from broader monetary easing to support growth.

China Everbright Ltd. (165) surged 15 percent to HK$13.54 after saying its parent China Everbright Group, with $420 billion of assets from banking and broking to tourism, will become a joint stock company. As the ruling Communist Party pledges a bigger role for markets in the economy, state businesses such as Everbright and Citic Group -- China’s first state-owned investment corporation -- are getting ownership makeovers.

Brokerages Rise

Brokerages jumped. First Shanghai increased 18 percent to HK$1.76, while Citic Securities Co. rose 6.9 percent to HK$20.25, leading the H-share index higher. Shenyin Wanguo HK Ltd. (218), which soared last week on its parent’s plan to buy Hong Yuan Securities Co., advanced 6.8 percent to HK$5.17.

The China Securities Regulatory Commission plans to lower some risk-management requirements on brokerages, China Securities Journal reported, without citing anyone.

China Coal jumped 6.2 percent to HK$5, while Yanzhou Coal Mining Co. gained 5.6 percent to HK$6.80.

Futures on the S&P 500 rose 0.3 percent today. The U.S. benchmark index fell 0.3 percent at the end of last week as concern over credit markets in Argentina and Portugal overshadowed data that signaled the Federal Reserve may have leeway to keep interest rates low. The index capped its biggest weekly drop in two years after U.S. stocks joined a global selloff at the end of July.

Bank Bailout

Portugal’s Banco Espirito Santo SA was bailed out by the nation’s central bank, with the lender to get 4.9 billion euros ($6.6 billion) in a deal that will guarantee its deposits and leave junior bondholders with losses. The bank, once the country’s largest by market value, reignited concern over the European credit situation after a parent company missed debt payments and it was ordered to raise capital.

In Hong Kong, government spending growth must slow to avoid default, the city’s financial secretary John Tsang wrote on his blog yesterday. While overall expenditure will continue to increase, it needs to be at a slower rate as current spending growth is impossible to maintain in the long-term, he wrote.

Anton Oilfield Services Group dropped 4.1 percent to HK$4.24 after saying it expects a “significant decline” in first-half profit due to slower revenue growth and pressure on prices.

Biostime International Holdings Ltd. (1112), a supplier of baby products, fell 4.1 percent to HK$37.20 after saying it’s not in talks with Danone SA or any other foreign dairy company. Shares surged on Aug. 1 by the most in a year after Bocom International Holdings Co. said in a report the company might be an attractive takeover target for Danone.

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

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