Hong Kong H-Shares Cap Three-Month High on China Outlook

Hong Kong stocks rose, with a gauge of mainland shares capping a three-month high, as signs of a recovery in China prompted Goldman Sachs Group Inc. to raise the nation’s economic growth forecast.

Zoomlion Heavy Industry Science and Technology Co., China’s second-largest maker of construction equipment, jumped 4 percent. Li & Fung Ltd., a toy and clothing supplier that gets more than 80 percent of its revenue from the U.S. and Europe, gained 1.9 percent amid signs global manufacturing is recovering. Digital China Holdings Ltd. jumped 5.5 percent after the distributor of networking products received bourse approval for a spin-off.

The Hang Seng China Enterprises Index added 2 percent to 10,250.97 in Hong Kong, its highest close since June 6. The Hang Seng Index gained 1 percent to 22,394.58, rising a fourth day in its longest winning streak since Aug. 13. Seven stocks climbed for each that declined on the 50-member benchmark.

“Economic drivers are still solid,” said Marco Li, a Hong Kong-based money manager at Manulife Asset Management, which oversees about $247 billion. “It looks like Europe isn’t going into a double-dip and China will avoid a hard landing.”

Shares advanced after Goldman Sachs raised its 2013 forecast for China growth to 7.6 percent year-on-year from 7.4 percent as industrial growth picked up amid improving global demand. China’s official Purchasing Managers’ Index over the weekend showed output climbed to a 16-month high.

Growth Target

Chinese Premier Li Keqiang said he’s confident of achieving the year’s economic goals, adding to signs China will meet its 7.5 percent growth target. Recent data show employment and prices are stable and market expectations have improved, he said in a speech today at the China-Asean Expo.

Zoomlion rose 4 percent to HK$6.54. China Petroleum & Chemical Corp., Asia’s largest refiner, advanced 3.8 percent to HK$5.97.

Manufacturing gauges from the U.K. to Spain showed a pick-up in the region. The Institute for Supply Management today is expected to report U.S. factory activity expanded for a third month.

Li & Fung gained 1.9 percent to HK$11.56. Esprit Holdings Ltd., a clothier that counts Europe as its biggest market, advanced 1.4 percent to HK$13.08.

Relative Value

The Hang Seng Index fell 1.2 percent this year, the second-worst performer among developed markets tracked by Bloomberg, as concern the Federal Reserve will taper stimulus weighed on global equities. The gauge traded at 10.7 times estimated earnings, compared with 14.83 for the Standard & Poor’s 500 Index on Aug. 30.

“Investor sentiment is still fragile,” said Manulife’s Li. “What we’ve had in the face of ‘tapering talk’ is the recognition that capital in the near to medium term is becoming more scarce.”

The Hang Seng China Enterprises Index, also known as the H-share index, dropped 16 percent from a Feb. 1 high after mainland economic growth slowed for two quarters. The measure traded at 1.23 times book value, compared with a five-year average of 1.77. China revised its 2012 gross domestic product expansion to 7.7 percent from 7.8 percent yesterday, with either figure the slowest rate since 1999.

Materials, Energy

Materials and energy companies led declines this year on the Hang Seng Composite Index amid concern the economic slowdown will sap demand. Utility and information-technology shares were the biggest gainers.

A gauge of China’s non-manufacturing industries fell to 53.9 in August from 54.1 in July, according to a statement today by the National Bureau of Statistics and the Federation of Logistics and Purchasing. A reading above 50 indicates growth.

Paper prices are expected to rise after China yesterday named 67 producers that will need to cut capacity. Nine Dragons Paper Holdings Ltd., a maker of packaging materials co-founded by Cheung Yan, one of China’s richest women, surged 13 percent to HK$5.98. Lee & Man Paper Manufacturing Ltd. soared 7.6 percent to HK$4.98.

Railway Spending

China Railway Group Ltd., the country’s No. 2 builder of train lines, gained 6.5 percent to HK$4.26. The company’s president said China was raising spending on railway construction to 530 billion yuan ($86.6 billion) this year from earlier plans for 520 billion yuan in expenditure. China Railway Construction Corp. climbed 3.5 percent to HK$7.90.

Digital China jumped 5.5 percent to HK$9.33 after receiving exchange approval for a proposed spin-off of its Digital China Information Service.

Futures on the S&P 500 rose 1 percent from Aug. 30, with markets closed yesterday for the Labor Day holiday. Hang Seng Index futures gained 0.7 percent to 22,317. The HSI Volatility Index fell 1.3 percent to 18.04, indicating traders expect a swing of 5.2 percent on the benchmark equity gauge over the next 30 days.

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