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Hong Kong Stocks Play Catch-Up With Shanghai Share Gains

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Dec. 27 (Bloomberg) -- Hong Kong stocks rose, chasing gains in Chinese shares after a two-day holiday, as a report showed profit at mainland industrial companies rose.

Guangzhou R&F Properties Ltd., a builder in the southern Chinese city, rose 0.8 percent. China National Building Material Co., a cement maker, gained 0.5 percent amid speculation the government’s urbanization plan will support demand. Shipmaker China Rongsheng Heavy Industries Group Holdings Ltd. tumbled 7.4 percent after saying it may report a full-year loss.

The Hang Seng Index gained 0.4 percent to close at 22,619.78. About three stocks advanced for each that fell on the 50-company measure, with volume 29 percent below the 30-day average. The Hang Seng China Enterprises Index of mainland companies increased 0.7 percent to 11,348.50 The Shanghai Composite Index gained 2.8 percent in the two days through yesterday.

“The A-share market was doing good while Hong Kong was in holiday for two days and that’s stimulating the market,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “Hong Kong remains firm. But it already surged a lot in the past two to three months because of hot money coming in. There may be some profit taking but the selling pressure isn’t too strong.”

Hong Kong’s benchmark index advanced 22 percent this year through Dec. 24 as central banks from Europe, the U.S. and Japan announced asset purchases.

The city’s de facto central bank bought more than $13 billion to defend the local currency’s peg to the U.S. dollar since the U.S. Federal Reserve began a third round of so-called quantitative easing. The Hong Kong dollar strengthened as investors poured stimulus-driven funds, “hot money,” into the city.

Relative Value

Shares on the measure traded at 11.9 times average estimated earnings yesterday, compared with 13.7 for the Standard & Poor’s 500 Index and 12.7 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Chinese industrial companies’ profits rose in November. Net income gained 22.8 percent from a year earlier to 638.5 billion yuan ($102 billion), the National Bureau of Statistics said today in Beijing. Profits gained 20.5 percent in October.

Real estate companies and makers of building materials gained on government plans to boost development in smaller cities. Guangzhou R&F rose 0.8 percent to HK$12.98, while Shimao Property Holdings Ltd., a developer that gets all its revenue from China, advanced 1.3 percent to HK$14.52.

Smaller Cities

China National Building Material gained 0.5 percent to HK$11.38 and Anhui Conch Cement Co., China’s biggest maker of the construction ingredient, climbed 0.4 percent to HK$28.30.

China’s largest cities including Beijing, Shanghai and Guangzhou will limit population under a new urbanization plan, while smaller cities and towns will loosen controls on residency, the Shanghai Securities News reported, citing an unidentified person. Urbanization is expected to spur 40 trillion yuan of investment by 2020, the Southern Metropolis Daily reported on Dec. 25, citing a draft plan by the National Development and Reform Commission on urbanization.

China Rongsheng Heavy was among companies that dropped on disappointing earnings forecasts. The shipbuilder dropped 7.4 percent to HK$1.25 after forecasting its first annual loss in four years.

Yuanda China Holdings Ltd., a curtain-wall maker, and frozen juice maker China Tianyi Holdings Ltd. dropped after saying they expect lower full-year profit. Yuanda slid 8 percent to 92 Hong Kong cents, while China Tianyi sank 1.7 percent to HK$1.16.

Futures on the Hang Seng Index climbed 0.5 percent to 22,666. The HSI Volatility Index gained 5.7 percent to 16.81 indicating traders expect a swing of 4.8 percent for the equity benchmark in the next 30 days.

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

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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