Hong Kong Stocks Rise, Erase Last Week’s Loss, on RQFII

Hong Kong stocks advanced, with the Hang Seng Index erasing last week’s decline, as mainland shares surged after a regulator said China can boost by 10 times quotas for foreign investment in its financial markets. Li & Fung Ltd., which supplies Wal-Mart Stores Inc. and Target Corp., plummeted 15 percent.

Gains by China Life Insurance Co. and China Construction Bank Corp. helped boost share gauges as Guo Shuqing, chairman of the country’s securities regulator, spoke at a conference in Hong Kong. Citic Securities Co., a mainland brokerage, jumped 6.2 percent as companies that may benefit from inflows of foreign funds into markets surged. Li & Fung reported operating income slumped 40 percent in 2012.

The benchmark Hang Seng Index gained 0.6 percent to 23,413.26 at the close, with about three stocks climbing for every two that fell. The Hang Seng China Enterprises Index of mainland companies increased 1.4 percent to 12,003.75, its highest close since August 2011.

“Guo’s comments are very significant as it shows the government is trying to get bullish on stocks and it’s a policy signal as well,” Hao Hong, Hong Kong-based China strategist at Bank of Communications, said in a phone interview. The Shanghai Composite Index surged 3.1 percent after Guo spoke.

Hong Kong stocks are benefiting from a gradual improvement in China’s economy, according to Francis Lun, Hong-Kong based managing director at Lyncean Securities Ltd.

Exports jumped 14 percent during December from a year earlier, according to a Jan. 10 report. Data last week showed inflation in China accelerating faster than expected as cold conditions in the north of the country pushed food prices higher last month.

Inflation Bogey

“The economic data is showing growth is rising again, especially in the rise of exports in December,” Lun said. “The only bogey is really the rise in the food prices again, especially the price of pork.”

The sudden jump in overseas shipments prompted renewed concern about the accuracy of the country’s statistics from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd.

More than two stocks increased for each that retreated on the Hang Seng Composite Index, which climbed 0.8 percent, led by financial shares and developers.

China Life Insurance gained 2.9 percent to HK$26.75, while China Construction Bank advanced 0.9 percent to HK$6.52. Citic Securities jumped 6.2 percent to HK$20.15.

“The risk on trade is continuing as the overall economic environment is fairly stable,” said Yoji Takeda, who oversees about $1.2 billion as Hong Kong-based head of Asian equities at RBC Investment Management (Asia) Ltd. “Inflation in China is still at an early stage. I don’t think it should be a big concern right now.”

Relative Value

Hong Kong’s benchmark index surged 23 percent last year as China’s economy showed signs of improvement and as central banks around the globe added stimulus. Shares on the measure traded at 11.3 times estimated earnings yesterday, compared with 13.3 for the Standard & Poor’s 500 Index and 12 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

China’s stocks are poised to rise 20 percent this year, bolstered by government efforts to boost domestic spending and accelerate urban development, according to David Li, UBS’s China chairman and country head.

The “uptrend” for equities remains unchanged even after the slide for the nation’s benchmark gauge on Jan. 11, Li said in an interview in Bloomberg’s Shanghai office. Shanghai’s Composite Index fell the most in three months on Jan. 11 after the inflation report signaled limited room for monetary easing to support an economic recovery.

Individual Investors

China has started preparations for a trial program that would allow individuals to invest in overseas capital markets, the State Administration of Foreign Exchange said Jan. 11.

In 2007, China unveiled a so-called “through-train” program, in which citizens could invest directly in Hong Kong stocks. That drove a 55 percent rally in the city’s shares through to Oct. 30, 2007, when the Hang Seng Index closed at a record 31,638.22. The State Administration of Foreign Exchange scrapped the plan in January 2010.

The HSI Volatility Index climbed 2.5 percent to 14.27, indicating traders expect the benchmark to swing 4.1 percent in the next 30 days.

Li & Fung dropped 15 percent to HK$11.74, its biggest decline since Aug. 10, with trading volume 12 times its five-day average. A slower-than-expected recovery at the U.S. unit contributed to the profit decline, Li & Fung said in a preliminary earnings statement on Jan. 11.

GCL-Poly Energy Holdings Ltd., a maker of polysilicon and solar wafers, dropped 4.3 percent to HK$2.03 after saying it expects a “substantial loss” for the year ended December 2012.

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