China H Shares Set for World’s Best Monthly Gain as Profits Beat

  • Hang Seng China Enterprises has advanced 6.5% in August
  • Stocks buoyed by better-than-estimated earnings, stimulus bets

A gauge of Chinese stocks in Hong Kong were poised for the biggest monthly gain among global peers as Bank of China Ltd. to Ping An Insurance (Group) Co. reported better-than-estimated earnings and investors speculated central banks would keep adding to stimulus.

The Hang Seng China Enterprises Index is up 6.5 percent in August, the most among 94 benchmark equity gauges tracked by Bloomberg. Banks and insurers have led the advance, with Industrial & Commercial Bank of China Ltd. surging 12 percent, while automakers declined. The gauge fell 0.6 percent at Wednesday’s close. The Shanghai Composite Index rose 0.4 percent, capping a third monthly advance in a row.

With China’s earnings season all but complete, 71 percent of companies included in the H-share gauge beat profit estimates, and 55 percent topped sales forecasts. Still, the nation’s economic slowdown is weighing on earnings, with analysts projecting net income at the gauge’s members will decline 14 percent in the current quarter. The equity rally stumbled in the second half of August amid concern higher borrowing costs in the U.S. will renew pressure on the yuan and Hong Kong’s property market.

“A mixed bag of better earnings and the Shenzhen stock connect drove gains this month,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “Whilst the market has had good gains, volumes have been on the low side. A lot of traders will come back from the summer break and the trend will be higher for September at least even as there will be some down days.”

Property Gains

The Hang Seng China Enterprises Index fell to 9,541.80, while the Shanghai Composite Index took its gain this month to 3.6 percent. A gauge of property shares on the mainland surged 12 percent in August after stake purchases by China Evergrande Group fueled optimism of more mergers and home prices in the largest cities climbed. The Shenzhen Composite Index advanced 4.7 percent, buoyed by the approval of an exchange trading link with Hong Kong.

Volatility on the Shanghai Composite has fallen to a two-year low as the country’s housing boom lures speculators -- new home prices in Shanghai jumped 27 percent in July from a year earlier. The stock gauge hasn’t moved more than 1 percent on a closing basis for two weeks, a far cry from the first half of the year when 2 percent daily swings were regular occurrences.

The link between equity markets in Hong Kong and Shenzhen is expected to start in mid- to late November, China’s markets regulator said Tuesday. The long-awaited program was officially approved on Aug. 16.

Mainland investors bought a net 4.3 billion yuan ($644 million) of Hong Kong stocks on Wednesday through the existing Shanghai link, the most in two months, Bloomberg data and calculations show.

ICBC shed 1.2 percent in Hong Kong on Wednesday after reporting a one-percent profit growth in the second quarter and the first decline in its bad-loan ratio since 2012. Bank of China climbed 1.2 percent, taking this month’s gain to 9.4 percent. The lender reported a 3.4 percent increase in second-quarter profit even after setting aside extra provisions to boost its bad-loan buffer.

Dongfeng Motor Group Co. has shed 13 percent this month, the worst performance on the Hang Seng China Enterprises Index, after the carmaker reported a decline in first-half earnings and didn’t propose an interim dividend. BOC Aviation Ltd. has jumped 8.9 percent as the aircraft leasing unit of Bank of China posted a 24 percent increase in first-half profit.

Evergrande fell 6.9 percent on Wednesday after China International Capital Corp. wrote in a report that its net gearing of more than 400 percent may hurt shareholders’ return. That pared this month’s gain to 9.6 percent. China Vanke Co. soared as much as 3.9 percent after Nexus Capital Management LP bolstered its stake in the company. The developer closed the day 0.1 percent lower, paring its gains in August to 13 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE