Hong Kong H-Shares Erase 2012 Losses on PBOC Yuan Comment

Hong Kong stocks rose, with a measure of mainland companies traded in the city erasing this year’s losses, after China’s central bank elaborated on plans to free up foreign-exchange controls.

Hong Kong Exchanges & Clearing Ltd., the world’s third-biggest bourse operator by market value, jumped 3 percent to lead gains on the Hang Seng Index after Morgan Stanley increased its rating. China Southern Airlines Co., the country’s biggest domestic carrier, surged 6.3 percent to lead its peers higher.

The Hang Seng China Enterprises Index of mainland shares traded in the city rose 0.6 percent to 11,437.44 at the close, with the index little changed for the year. The Hang Seng Index gained 0.2 percent to 23,700.86, its highest close since Feb. 1. About twice as many stocks climbed as dropped on the measure, amid volume 28 percent higher than the 30-day average.

“Gradually we will see further appreciation on the yuan and people will come in to buy assets, whether it’s equity or properties,” said Steven Leung, director of institutional sales at UOB-Kay Hian Holdings Ltd. “Hong Kong stocks will definitely benefit from the latest arrangement on the yuan. The sentiment has been changed totally after the release of details from the third plenum.”

H-Shares Rally

The so-called H-share index climbed 29 percent from this year’s low on June 25 as data signaled China’s economy is strengthening and policy makers unveiled the biggest package of reforms since the 1990s. The Hang Seng Index was up 20 percent from its June low. The city’s benchmark gauge traded at 11.3 times estimated earnings, compared with 16.2 for the Standard & Poor’s 500 Index yesterday.

China’s central bank will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading limit, Governor Zhou Xiaochuan said, without giving a time frame. The daily range will be widened in an “orderly way” as China seeks to enhance the currency’s two-way flexibility, Zhou wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting.

Quotas under the Qualified Domestic Institutional Investor and Qualified Foreign Institutional Investor programs will be expanded and then scrapped, Zhou said in the book comments.

Hong Kong Exchanges rose 3 percent to HK$138.90 after Morgan Stanley analyst Anil Agarwal increased its rating on the stock to equal-weight from underweight, and said the brokerage will be more bullish on the stock if the turnover outlook keeps improving.

Policy Shift

China last week released details of plans to allow more private investment in state-controlled industries, loosen family-planning rules and expand farmers’ land rights. The nation is liberalizing policies in an effort to bolster an economy that’s heading for its weakest annual expansion since 1999.

Futures on the S&P 500 were little changed. Yue Yuen Industrial (Holdings) Ltd., a shoemaker that gets about 29 percent of sales from the U.S., added 2.3 percent to HK$22.40 as Federal Reserve Chairman Ben S. Bernanke said U.S. borrowing costs will probably stay low long after the central bank ends its monthly bond purchases.

Techtronic Industries Co. gained 5.7 percent to HK$20.20 after its largest customer Home Depot Inc. raised fiscal sales guidance.

China Rongsheng Heavy Industries Group Holdings Ltd., a shipbuilder, surged 21 percent to HK$1.16, while Guangzhou Shipyard International Co. gained 13 percent to HK$17.24. China’s Ministry of Industry and Information Technology said last week qualified shipbuilders can apply for policy support.

Futures on the Hang Seng Index were little changed at 23,757. The Hang Seng Volatility Index climbed 1.9 percent to 17.02, indicating traders expect the benchmark equity index to swing 4.9 percent in the next 30 days.

“There are still quite a lot of long-term investors waiting for some pull back to add exposure to their portfolio,” said UOB’s Leung. “If the market doesn’t drop too much they’ll have to rush in again.”

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