Hong Kong stocks advanced, with a gauge of China shares rising more than 20 percent from a June 25 low, as mainland factory output accelerated at the fastest pace in 17 months and retail sales beat estimates.
The Hang Seng China Enterprises Index, also known as the H-share index, climbed 1.6 percent to 10,697.44 at the close in Hong Kong, rebounding 21 percent from its lowest level this year and meeting some traders’ definition of a bull market. The Hang Seng Index added 1 percent to 22,976.65 after yesterday erasing this year’s loss.
“Confidence is being boosted by better-than-expected China data,” said Alex Wong, a Hong Kong-based director at Ample Capital Ltd. “The H-share index is stronger, showing investors are more skewed towards China since it’s been depressed for some time and we are seeing signs of recovery.”
Yanzhou Coal Mining Co., China’s fourth-largest producer of the fuel, led gains on the H-share index after its parent bought more shares. Airlines climbed on steadier mainland growth and optimism for Shanghai’s planned free-trade zone, according to China Minzu Securities Co. Lenovo Group Ltd. advanced 3.9 percent after CCB International Holding Ltd. raised its rating on the world’s biggest computer maker. Esprit Holdings Ltd. reversed gains to plunge 7.2 percent after the apparel retailer posted its first annual loss.
The Hang Seng China Enterprises Index traded at 7.9 times estimated earnings, compared with a five-year average of 10.6. The H-share gauge slumped 27 percent from February through June 25, dragging its price-earnings ratio to the lowest since 2008. Shares rebounded on stronger China factory activity after a two-quarter slowdown and a tightening of credit to curb speculative lending. Premier Li Keqiang said he’s confident of achieving 7.5 percent economic expansion this year.
China’s industrial output rose 10.4 percent in August from a year earlier, the National Bureau of Statistics said on its website today, exceeding analyst estimates for 9.9 percent growth. Retail sales gained 13.4 percent and the broadest measure of new credit almost doubled from July. A report over the weekend fueled gains in global stocks after it showed Chinese exports rose more than economists expected last month.
September 2012 was the last time the H-share gauge entered a bull market. Such rallies on the measure last an average of 185 days, according to data compiled by Bloomberg based on the 24 occurrences since 1993. The longest run in the past decade began in May 2004 and lasted two years.
“I’m not overly positive that this bull market can be sustained,” said Kelvin Wong, a Hong Kong-based analyst at Bank Julius Baer & Co., which manages about $325 billion. “The earnings quality for Chinese companies is not that good. We’re seeing some economic stability but we’re not sure the improvement will continue.”
Yanzhou Coal gained 10 percent to HK$8 after saying parent Yankuang Group Co. purchased 97.7 million shares to increased its stake in the coal producer.
China Eastern Airlines Corp. jumped 6 percent to HK$2.65. China Southern Airlines Co., the country’s biggest domestic carrier, climbed 6.2 percent to HK$3.10.
Cyclical stocks such as airlines are advancing on stabilization of mainland economic growth and bets the free-trade zone will further open the world’s second-biggest economy, China Minzu Securities analyst Li Lei said. The cabinet last month approved the nation’s first free-trade zone in Shanghai, saying it was crucial for adapting to global development.
Lenovo advanced 3.9 percent to HK$8.04 after CCB International raised its rating on the stock to outperform from neutral, with a target price of HK$9.20.
Evergrande Real Estate Group Ltd., China’s biggest developer by revenue, gained 2.7 percent to HK$3.46. Sales surged 59 percent in August from a year earlier, the company said. The 27 percent gain in the first eight months of the year represents 64 percent of the annual target.
Futures on the Standard & Poor’s 500 Index rose 0.4 percent. The measure jumped 1 percent yesterday as corporate acquisitions fueled optimism in the world’s largest economy. Koch Industries Inc.’s takeover of Molex Inc. is among $160 billion of mergers and acquisitions that have been announced in the U.S. since the end of August, the most since 2007, data compiled by Bloomberg show. Shares also rose as President Barack Obama struggled to build support for a strike against Syria.
Among stocks that fell, Esprit tumbled 7.2 percent to HK$11.66, reversing a gain of as much as 5.6 percent after announcing earnings. The company said it swung to a loss of HK$4.39 billion ($566 million) for the year ended June 30, from a HK$873 million profit a year earlier. The result compares with the average estimate for a HK$3.4 billion loss from 14 analysts surveyed by Bloomberg.
Sihuan Pharmaceutical Holdings Group Ltd. dropped 10 percent to HK$5.15 after saying investors are selling 350 million shares in the company.
The Hang Seng Index gained 1.4 percent this year and today traded at 11 times estimated earnings, compared with 15.1 for the S&P 500. Futures on the Hong Kong gauge rose 0.9 percent to 22,959. The HSI Volatility Index fell 4.3 percent to 16.80, indicating traders expect the benchmark equity index to swing 4.8 percent in the next 30 days.