July 22 (Bloomberg) -- Hong Kong stocks rose for a second day, with the benchmark index closing at its highest level in more than a week. China Resources Power Holdings Co. jumped after shareholders rejected a plan to combine with a sister company and China Citic Bank Corp. led smaller lenders lower after the nation removed a floor on loan rates.
China Resources Power, a mainland generator that tumbled 15 percent last week amid allegations of overpaying for coal assets, rose 5.2 percent, leading gains on the Hang Seng Index. Yue Yuen Industrial Holdings Ltd., which gets 29 percent of sales from the U.S., increased 3.3 percent before the release of U.S. housing data. Citic Bank, a unit of the nation’s largest state-owned investment firm, dropped 3 percent as Moody’s Investors Service said changes to the nation’s lending rules will mean increased competition for loans to small and medium enterprises.
The Hang Seng Index rose 0.3 percent to 21,416.50 at the close, after falling as much as 0.4 percent. Volume was almost half its 30-day intraday average, with about five stocks advancing for every three that fell. The Hang Seng China Enterprises Index of mainland shares, the fourth-worst performing major gauge in the world this year, retreated 0.4 percent to 9,415.06.
“The low turnover shows investors are very cautious and are staying on the sidelines,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “Sentiment is still cautious towards China.” Expectations of upcoming earnings by some blue-chip companies like AIA Group Ltd. are helping the market, he said. AIA, which is due to report its first-half earnings this week, rose 2.9 percent.
The Hang Seng Index last week capped its fourth straight weekly gain as coal producers jumped. The gauge is down 5.5 percent this year, the second-worst performance among 24 developed markets monitored by Bloomberg. Shares slid amid signs China’s growth is slowing and on speculation the Federal Reserve will taper U.S. stimulus.
Materials and energy companies led declines this year on the Hang Seng Composite on speculation demand will weaken amid slower growth in China’s economy. Gauges of information technology, utilities and services were the only measures that rose among the index’s 11 industry groups.
The Hang Seng Financial Index, a subgroup of the broader Hang Seng Composite, climbed 0.2 percent after falling as much as 0.4 percent today. The People’s Bank of China scrapped the floor on the rates banks can charge customers on July 19 while keeping a cap on deposit rates. The limit on mortgage rates will stay to curb property speculation, the PBOC said. Also unchanged was a 10 percent limit on what banks can offer over PBOC-set deposit rates.
“Although the removal of the lending rate floor is an important step in China’s reform of its financial system, the PBOC’s action is credit negative for Chinese banks because it is another move towards interest-rate deregulation that will narrow their net interest margins,” Moody’s senior analysts Bin Hu and Sonny Hsu wrote in a report dated today. “We expect the PBOC’s latest move will accelerate Chinese banks’ expansion into more profitable businesses, such as loans to small and midsize enterprises, as a way to offset rising margin pressure.”
China Citic dropped 3 percent to HK$3.51. Chongqing Rural Commercial Bank Co., created after the government merged rural cooperatives in the region, slumped 2.5 percent to HK$3.14. Industrial & Commercial Bank of China Ltd., the country’s No. 1 lender, retreated 1.2 percent to HK$4.86. China Construction Bank Corp., the second-biggest, dropped 0.9 percent to HK$5.44.
Shares on the benchmark Hang Seng Index traded at 10.2 times estimated earnings, compared with 15.4 times for the Standard & Poor’s 500 Index and 13.5 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
The Hang Seng China Enterprises Index, also known as the H-share index, fell 23 percent from a Feb. 1 high, meeting some investors’ definition of a bear market. Only major measures in Peru, Brazil and Cyprus have done worse this year in local currency terms. The gauge traded at 1.14 times the value of net assets, 36 percent below its five-year average of 1.79.
Futures on the S&P 500 added 0.1 percent today. The U.S. equity index gained 0.2 percent on July 19 in New York as better-than-forecast results from General Electric Co. offset disappointing earnings from Google Inc. and Microsoft Corp.
The National Association of Realtors may show today sales of previously owned homes in the U.S. rose to 5.25 million annualized pace in June from 5.18 million the prior month, according to the median forecast of economists.
Yue Yuen rose 3.3 percent to HK$22.15. Techtronic Industries Co., a maker of power tools that gets 73 percent of its sales from North America, increased 3.9 percent to HK$19.88.
China Resources Power gained 5.2 percent to HK$17.74, leading gains on the Hang Seng Index. The company tumbled last week after the official Xinhua News Agency posted a letter on its website written to the Communist Party’s corruption inspector by a reporter alleging China Resources Power paid about double what another company bid for the assets. The company denied the claim.
Shareholders rejected China Resources Power’s plan to merge with China Resources Gas. Overhang on the company would be removed if the plan is voted down, Citigroup Inc. said in a report dated July 4. China Resources Gas climbed 1.9 percent to HK$19.54.
Zhaojin Mining Industry Co., the mainland’s No. 2 gold producer, rose 4.5 percent to HK$5.09 as the precious metal jumped to a one-month high.
Tencent Holdings Ltd., the country’s largest internet company and the stock with the leading year-to-date gain on the Hang Seng Index, slid 1.9 percent to HK$327.60, the biggest drag to the Hang Seng Index. The drop was affected by the overall market performance in Hong Kong today, said Ricky Lai, an analyst at Guotai Junan International Holdings Ltd., reiterating his buy recommendation on the stock.
Future Land Development Holdings Ltd., a Shanghai-based developer active in the Yangtze River delta, dropped 12 percent to 92 Hong Kong cents and was among companies that tumbled after saying it expects a drop in first-half profit. The stock led declines on the Hang Seng Composite Index, followed by C C Land Holdings Ltd.
C C Land, a property developer in western China, slid 7.4 percent to HK$1.99 after saying it expects its first-half sales will tumble 65 percent from a year earlier.
Hang Seng Index futures climbed 0.3 percent to 21,397. The HSI Volatility Index retreated 0.9 percent to 19.05, indicating traders expect a swing of 5.5 percent for the equity benchmark in the next 30 days.
To contact the reporter on this story: Kana Nishizawa in Hong Kong at firstname.lastname@example.org
To contact the editor responsible for this story: Nick Gentle at email@example.com