- H-shares rally has room to run, says Bernstein chartist
- Shanghai Composite posts biggest two-day gain in a month
Chinese stocks rose in Hong Kong, capping the benchmark index’s biggest weekly gain since April, after investors speculated the government will take more steps to boost the economy and Federal Reserve minutes indicated the central bank isn’t in a hurry to raise interest rates.
Hong Kong’s Hang Seng China Enterprises Index climbed 1.2 percent to 10,406.79 at the close, extending this week’s advance to 7.4 percent. Industrial & Commercial Bank of China Ltd. and PetroChina Co. surged at least 2.3 percent, posting gains of more than 9 percent this week. The Hang Seng Index rose 0.5 percent as trading volumes increased 24 percent above the 30-day average, while the Shanghai Composite Index added 1.3 percent to 3,183.15.
The H-shares gauge, the worst performer among global benchmarks last quarter along with the Shanghai index, has rebounded 14 percent from a September low, as automakers rallied on a tax cut to passenger-vehicle purchases and energy companies gained on higher oil prices. Investor sentiment has also improved after disappointing jobs data from the U.S. pushed back expectations for a rate increase this year.
“H shares follow cues from the overseas market, particularly the U.S., so it’s more subject to foreign flows,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co. “We all know that the economy is not doing good, so people are expecting the government will continue to do more to revive growth.”
PetroChina, the nation’s biggest oil producer, advanced 2.6 percent. The stock surged 14 percent this week, the most since May 2009. CNOOC Ltd. jumped 3.6 percent. Oil traded above $50 a barrel on Thursday for the first time since July on signs rising demand will trim the surplus that drove prices to the lowest level in six years. Fed minutes indicated policy makers won’t rush to lift rates, sending the dollar lower and making commodities priced in the U.S. currency more attractive.
“Expectations of a delay in a U.S. rate hike leave room for China monetary easing,” said Huang Cendong, an analyst at Sinolink Securities Co. in Shanghai. The Shanghai gauge may trade in a range of 3,000 to 3,400 in October, he said.
ICBC, the largest Chinese lender, gained 2.3 percent for a 9.5 percent advance this week. Nomura Holdings Inc. sees further cuts in reserve-requirement ratios in the fourth quarter, with the magnitude being more than what’s needed to offset capital outflows, the brokerage’s head of China equity research, Wendy Liu, said in an interview this week.
The rebound in Chinese stocks in Hong Kong has room to run, said Ayush Nagaraj, a sales trader and chartered market technician at Sanford C. Bernstein & Co. The H-shares index will rise 6.9 percent from Thursday’s close to at least 11,000 after forming a pattern known as a double bottom, said Nagaraj, who accurately predicted the plunge in Tencent Holdings Ltd.’s shares in April last year.
The H-shares gauge trades at 7.4 times estimated earnings for the next 12 months, compared with 12.3 for the Shanghai index. The recent rally for Hong Kong shares has narrowed their discount to mainland equities, with the Shanghai premium sliding to a one-month low this week.
A gauge of material shares in the CSI 300 rose 2.4 percent for the steepest gain among 10 industry groups. Jiangxi Copper Co. surged 3.8 percent. Ping An Insurance (Group) Co. led gains for financial companies, climbing 3.2 percent. China will support insurers buying corporate bonds sold by major construction companies, according to a joint statement by the National Development and Reform Commission and the China Insurance Regulatory Commission.
The Shanghai Composite, which rose 3 percent on Thursday, posted its biggest two-day gain a month after trading resumed following a week-long holiday. During the break, the government released data showing the official purchasing managers’ index advancing to 49.8 in September. While the index showed manufacturing stabilizing, it remains below the 50 level that indicates an expansion.
China will release export and consumer-price data next week. Overseas shipments probably dropped 6 percent last month from a year earlier, while the inflation rate slowed to 1.8 percent, according to the median estimates of Bloomberg surveys.
Margin traders increased holdings of shares purchased with borrowed money for the first time in seven days on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising 1.5 percent to 573.4 billion yuan ($90.3 billion).
— With assistance by Shidong Zhang