Hong Kong Stocks Rise as China Central Bank Pumps in Cash

Hong Kong stocks rose, with the city’s benchmark index paring yesterday’s decline, after China’s central bank said it would add cash to the financial system and expand a lending facility to include smaller banks.

Industrial and Commercial Bank of China Ltd. climbed 2.7 percent as financial shares led gains on the Hang Seng Index. Lenovo Group Ltd., said to be in discussions to acquire International Business Machines Corp.’s low-end server business, increased 2.8 percent. Cnooc Ltd. dropped 6.3 percent after China’s biggest offshore energy explorer announced a 2014 output estimate that was less than its five-year average growth target.

The Hang Seng Index added 0.5 percent to 23,033.12 at the close in Hong Kong after retreating 0.9 percent yesterday. The Hang Seng China Enterprises Index, also known as the H-share index, advanced 1.8 percent to 10,218.41, the biggest gain in more than two months. China’s seven-day repurchase rate slid 88 basis points today to 5.44 percent in Shanghai, after surging 153 basis points yesterday amid rising demand for cash before the Lunar New Year.

“This should help the smaller banks that have been squeezed by the high interbank rates,” said Andrew Sullivan, a sales director at Kim Eng Securities. “For the wider market, liquidity remains tight.”

Cash Injection

The People’s Bank of China said it supplied money to the largest commercial banks yesterday through a lending facility and, according to traders, conducted 255 billion yuan ($42 billion) of reverse-repurchase agreements today. Small-and medium-sized lenders in 10 regions will also be able to tap the PBOC’s Standing Lending Facility for loans of up to two weeks on a trial basis.

The PBOC will conduct the SLF trials in the cities of Beijing and Shenzhen, as well as Jiangsu, Shandong, Guangdong, Hebei, Shanxi, Zhejiang, Jilin and Henan provinces, according to a statement on its website. A 120 billion yuan quota has been set aside for the trial, according to two traders familiar with the matter, who asked not to be identified as the information is confidential.

A measure of financial stocks led gains on the Hang Seng Index. ICBC, China’s biggest bank, rose 2.7 percent to HK$4.91, while China Construction Bank Corp., the nation’s No. 2 lender, added 3 percent to HK$5.55.

Lenovo Climbs

Lenovo gained 2.8 percent to close at HK$10.46, after rising as much as 4.5 percent. The company is said to be in discussions to acquire IBM’s low-end server business and a deal may be signed within weeks, according to a person with direct knowledge of the matter.

The Hang Seng Index dropped 1.2 percent this year and traded at 10.2 times estimated earnings today, compared with 15.6 for the Standard & Poor’s 500 Index on Jan. 17. The H-share measure declined 5.5 percent in 2014 and traded at 6.8 times forecast profits.

Futures on the S&P 500 rose 0.3 percent today. U.S. equity markets were closed yesterday for a public holiday.

Cnooc slumped 6.3 percent to HK$13.08, the biggest decline in more than two years, after the company said it will produce 422 million to 435 million barrels of oil equivalent in 2014. Analysts at Nomura Holdings Inc. and Sanford C. Bernstein downgraded the stock after the output projection.

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