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Hong Kong Stocks Climb as Chinese Industrial Profits Rise

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May 27 (Bloomberg) -- Hong Kong stocks rose, with the city’s benchmark index rebounding after falling the previous four days, as a report showed industrial companies’ profits accelerated in April.

Guangzhou Automobile Group Co., which has manufacturing ventures with Toyota Motor Corp. and Honda Motor Co. in China, jumped 6.4 percent on speculation a proposed policy change in the southern Chinese city will boost vehicle sales. Kingsoft Corp. surged 19 percent after the software maker posted higher earnings. 361 Degrees International Ltd. sank 7.7 after the sportswear manufacturer projected a drop in first-half profit.

The Hang Seng Index added 0.3 percent to 22,686.05 at the close in Hong Kong after falling as much as 0.3 percent. More than two shares rose for each that fell on the gauge. Trading volume was 39 percent below the 30-day intraday average. The Hang Seng China Enterprises Index of mainland stocks rose 0.3 percent to 10,753.49, erasing losses of as much as 0.4 percent.

The benchmark Hang Seng Index retreated 2 percent last week amid speculation the Federal Reserve will reduce its bond purchases as the economy improves and after preliminary Chinese data showed an unexpected contraction in manufacturing. Shares on the gauge traded at 10.8 times estimates earnings, compared with the average of 12.6 times in the past five years, according to data compiled by Bloomberg.

“Valuations are becoming more attractive,” said Yoji Takeda, who helps oversee about $1.5 billion as Hong Kong-based head of Asian equities at RBC Investment Management (Asia) Ltd. “There’s not much catalyst for the market to rally with China’s overall growth momentum still slowing down.”

Industrial Profits

Net income for Chinese industrial companies last month rose 9.3 percent from a year earlier to 437 billion yuan ($71.3 billion) after a 5.3 percent increase in March, the National Bureau of Statistics said in Beijing. Profit in the first four months of the year climbed 11.4 percent to 1.61 trillion yuan, it said.

Stronger profit growth may spur investment in factories and equipment, helping sustain growth in the world’s second-biggest economy as the government avoids adding stimulus. China’s President Xi Jinping signaled a tolerance for slower expansion to reduce environmental damage.

Guangzhou Automobile jumped 6.4 percent to HK$8.67, a record high, on speculation a proposal to allow unlimited reuse of license plates in the city where the carmaker is based will boost vehicle sales.

Kingsoft, Lenovo

Kingsoft surged 19 percent to HK$11.74 after saying first-quarter net income increased 56 percent from a year earlier to 195.9 million yuan.

Lenovo Group Ltd., the world’s second-biggest personal computer maker, rose 2 percent to HK$7.81, extending gains for a third day to its highest close since March 27. Daiwa Securities Group Inc. initiated coverage of the stock with a buy rating and share-price forecast of HK$9, saying the company may soon overtake Hewlett-Packard Co. as the world’s No. 1 PC maker because of its increase dominance in China.

Weichai Power Co. gained 3 percent to HK$29.55 after the diesel-engine maker signed an option to increase its stake in Germany’s Kion Group to 30 percent from 25 percent.

Among stocks that fell, 361 Degrees dropped 7.7 percent to HK$1.93, the lowest since Sept. 27. First-half profit will fall as performance showed a “significant” decline in the first three months of the period on lower orders from trade fairs, increased production costs and expiration of tax concessions, the clothing maker said.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net

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

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