Hong Kong Stocks Close Near Two-Month High on China PMI

Hong Kong stocks rose, with the benchmark index closing at its highest in almost two months, after China’s manufacturing unexpectedly strengthened.

Angang Steel Co., the largest steelmaker traded in Hong Kong, advanced 7.2 percent as the Chinese data boosted materials makers. CSR Corp., the mainland’s biggest trainmaker, jumped 7.7 percent after the State Council pledged to boost infrastructure including public transport. Developers extended yesterday’s gains after the government endorsed stable growth in the property market.

The Hang Seng Index gained 0.9 percent to 22,088.79, closing at its highest level since June 4. All but six stocks rose on the 50-member gauge, which yesterday capped its biggest monthly advance since September. Volume on the measure was half its 30-day average. The Hang Seng China Enterprises Index rose 0.7 percent to 9,723.93.

“China’s outlook has been improving,” said Benjamin Tam, a portfolio manager at IG Investment Ltd., which oversees about $1.5 billion. “China’s president and premier gave comfort to the market by announcing the base line, and have already started some stimulus. Although very small, at least they are doing something.”

The official Xinhua News Agency reported this week authorities will maintain steady second-half expansion amid “extremely complicated domestic and international conditions,” after a meeting led by President Xi Jinping. Chinese Premier Li Keqiang said the “bottom line” for economic growth is 7 percent, Beijing News reported last month.

China Slowdown

The Hang Seng Index fell 2.5 percent this year, the worst performance among developed markets tracked by Bloomberg, as growth weakened in China and on concern the Federal Reserve will taper stimulus in the U.S. The gauge traded at 10.5 times estimated earnings, compared with 15.3 for the Standard & Poor’s 500 Index.

Shares rose after China’s Purchasing Managers’ Index climbed to 50.3 in July, the National Bureau of Statistics and China Federation of Logistics & Purchasing said today in Beijing. That compared with the 49.8 median forecast of 35 analysts in a Bloomberg News survey and June’s 50.1 level. Readings above 50 indicate expansion in factory activity.

Investor Sentiment

“Investors were generally pessimistic about China for the short-term. Anything that suggest that China is not collapsing is going to be greeted with optimism,” said Stephen Green, head of Greater China research at Standard Chartered Plc. “For China to outperform, it just needs to not collapse. Things may rally in the second half because lots of year-on-year numbers are beginning to look more positive.”

Measures of materials and industrial goods led the Hang Seng Composite Index. Jiangxi Copper Co., the nation’s No. 1 producer of the industrial commodity, gained 1.4 percent to HK$13.26. Angang Steel jumped 7.2 percent to HK$4.61. Maanshan Iron & Steel Co., the second-biggest Hong Kong-traded mill, increased 4.4 percent to HK$1.92.

A separate manufacturing index released by HSBC Holdings Plc and Markit Economics today gave a July reading of 47.7, an 11-month low. The gauge surveys fewer companies and is weighted toward smaller, private businesses.

China Outlook

While China’s outlook is improving, overall economic figures are still poor, said IG Investment’s Tam. “The market will remain calm and turnover will remain low for the next couple of days.”

China will boost construction of urban infrastructure such as transportation as part of plans to continue economic reforms and maintain steady second-half expansion. Work will include subway and light rail systems, the State Council said in a statement issued after a regular meeting in Beijing yesterday.

CSR jumped 7.7 percent to HK$5.57. China Communications Construction Co., a builder of ports, bridges and other transport infrastructure, gained 3.7 percent to HK$6.15.

Property Stocks

Shimao Property Holdings Ltd., a mainland developer controlled by billionaire Hui Wing Mau, increased 1.6 percent to HK$16.60. Sino-Ocean Land Holdings Ltd., a developer that has the nation’s biggest insurer as its largest shareholder, gained 4.8 percent to HK$4.16. Developers rose yesterday after China’s government said it will seek “stable and healthy” growth of the property market.

Futures on the S&P 500 rose 0.6 percent today. The U.S. equity gauge slid less than 0.1 percent yesterday, erasing earlier gains after the Federal Reserve refrained from indicating when it will reduce the pace of $85 billion of monthly bond purchases and data showed the economy grew more than projected in the second quarter.

Stimulus Outlook

The Fed repeated the pledge it has held to since September, that it will continue stimulus until the U.S. labor market outlook has improved substantially. Policy makers left unchanged their commitment to hold the key rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation over one to two years doesn’t exceed 2.5 percent.

The Hang Seng China Enterprises Index, also known as the H-share index, fell as much as 27 percent from a Feb. 1 high, meeting some investors’ definition of a bear market. The measure traded at 1.17 times the value of net assets, 34 percent lower than its five-year average of 1.78.

Nine Dragons Paper Holdings Ltd., a maker of paper and packaging materials co-founded by Cheung Yan, one of China’s richest women, surged 12 percent to HK$5.49, its biggest increase since February 2012. Lee & Man Paper Manufacturing Ltd. jumped 8.7 percent to HK$5.49. Both plan to boost prices, Eric Lau, an analyst at Citigroup Inc., wrote in a report yesterday.

Hutchison Telecommunications

Hutchison Telecommunications Hong Kong Holdings Ltd., the phone carrier controlled by billionaire Li Ka-shing, tumbled 13 percent to HK$3.86 after its first-half sales dropped 9 percent from a year earlier.

Hang Seng Index futures climbed 0.6 percent to 22,001. The HSI Volatility Index dropped 4.9 percent to 17.24, indicating traders expect a swing of 4.9 percent for the equity benchmark in the next 30 days.

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