- Hang Seng China Enterprises Index has risen for nine days
- Energy producers, brokerages have led gains on the gauge
Investors in China’s battered H shares are finally seeing some light.
The Hang Seng China Enterprises Index has risen for nine days in a row, notching up a gain of 5.9 percent, and capping its longest winning streak since March 2007. The gauge, which saw its valuations sink to record lows this year, is the top performer among global benchmark gauges tracked by Bloomberg since last month’s low and climbing twice as fast as the Shanghai Composite Index.
While data from China have yet to show a turnaround in the world’s second-largest economy, investors have found other reasons to buy shares listed in Hong Kong, not least valuations. A rally in crude has propelled gains by energy producers, which have some of the largest weightings on the gauge. A weakening yuan prompted mainland investors to pile into Hong Kong stocks at the fastest pace in more than a year as they seek shelter in the city’s dollar-pegged currency.
“Sentiment is better than in the mainland,” said Steve Wang, head of research at Reorient Financial Markets Ltd. "Hong Kong shares are undervalued compared with Chinese equities, which has attracted some inflows."
The so-called H-share gauge added 0.3 percent to 9,027.82 at the close, its highest since April 28. The gauge has climbed 9.5 percent since May 19, paring this year’s loss to 6.6 percent. That’s reduced the premium of dual-listed shares on the mainland to 31 percent. The Shanghai Composite dropped 0.3 percent to 2,927.16, extending its slump for 2016 to 17 percent, the biggest decline among 93 global gauges.
Mainland markets will be closed for holidays for the rest of the week, while Hong Kong’s will be shut on Thursday.
The latest economic data provided mixed signals on the outlook for growth. While China’s imports slipped 0.4 percent from a year earlier, the smallest drop since late 2014, overseas shipments fell 4.1 percent, the most in three months, the customs administration said Wednesday. China’s foreign-exchange reserves slipped to the lowest level since late 2011 as a rallying dollar ate into the value of its holdings, figures released late Tuesday showed.
Great Wall Motor Co., China Longyuan Power Group Corp. and China Oilfield Services Ltd. have climbed more than 14 percent over the nine-day period to top gains among the 40 members. Citic Securities Co. has jumped 10 percent to lead a rally by brokerages on speculation China’s regulators will soon announce a start date to a long-delayed exchange link between Hong Kong and Shenzhen.
The H-share gauge trades at 7.1 times reported earnings, compared with 15.8 times for the MSCI Asia Pacific Index and 16.1 for the Shanghai measure.
Mainland traders bought a net 21.9 billion yuan ($3.3 billion) of shares listed on the city’s stock exchange in May, the most since April 2015, according to data compiled by Bloomberg tracking investments via the exchange link with Shanghai. The inflows came as the yuan slumped against the dollar last month by the most since August’s devaluation.
Compared with Hong Kong, trading on the Shanghai Composite has been subdued, with a gauge of volatility falling to its lowest level since 2014 last week, as investors await next week’s decision by MSCI Inc. on whether to include mainland shares in its international indexes.
There are signs gains have been too fast, too soon in Hong Kong. The Hang Seng China Enterprises Index’s relative strength index rose to 69.9 on Wednesday, on the brink of the 70 level that signals to some traders a rally is overdone.
For William Fung, vice president at Southwest Securities Co., the rally is nearing its end.
"The economic fundamentals haven’t changed much," Fung said in Hong Kong. "China’s data are better but on the other hand currency reserves have gone down, meaning the market expects there are challenges to the economy or the yuan," he said. "I don’t expect much more from here."