Hong Kong H-Shares Climb to Year’s High on Stimulus Bets

A gauge of Chinese stocks traded in Hong Kong closed at its highest this year amid optimism policy makers will roll out more stimulus after mainland economic data missed analyst estimates and investors weighed earnings.

The Hang Seng China Enterprises Index, also known as the H-share index, ended the day 1.2 percent higher at 11,193.89 after falling as much as 0.5 percent. The benchmark Hang Seng Index advanced 0.8 percent to 24,890.34.

Reports today showed China’s industrial output grew 9 percent in July from a year earlier, missing estimates for a 9.2 percent gain. Data earlier showed aggregate financing was 273.1 billion yuan ($44.3 billion) in July, compared with the 1.5 trillion yuan projection in a Bloomberg survey and 1.97 trillion yuan the month before.

“It’s definitely a ‘bad is good’ thematic playing out in Hong Kong and China today, as investors are expecting more easing,” said David Welch, the head of equity sales trading at Reorient Group Ltd. “Investors who are underweight on the market are being forced to cut bearish bets.”

Yanzhou Coal Mining Co., the fourth-biggest Chinese coal miner by market value, jumped 5.6 percent. China Longyuan Power Group Corp. advanced 3.5 percent to lead gains on the H-share gauge. Huaneng Renewables Corp. surged the most since April after the alternative-energy company’s first-half profit climbed. Cathay Pacific Airways Ltd. lost 1.7 percent after net income missed estimates.

Stimulus Optimism

Data today also showed China retail sales posted 12.2 percent growth last month, compared with expectations for a 12.5 percent rise. China’s M2 money supply grew 13.5 percent from a year earlier, less than the 14.4 percent forecast.

The H-share gauge rose 22 percent from this year’s low in March after the government rolled out targeted stimulus to meet its growth target. The equity index traded at 7.8 times estimated earnings today, compared with 11.5 for the Hang Seng Index and 16.2 for the Standard & Poor’s 500 Index yesterday.

“Today’s numbers are still respectable and it’s not a cause for any concern,” said Sam Le Cornu, who helps oversee about $2.5 billion at Macquarie Investment Management Ltd. “We’re still in a position where equity valuations in Hong Kong and China are low.”

Earnings Season

Huaneng Renewables Corp. jumped 7.7 percent to HK$2.81 after first-half profit climbed 2.9 percent to 686 million yuan ($111 million). Cathay Pacific Airways declined 1.7 percent after the carrier posted net income of HK$347 million compared with analyst expectations for a HK$462 million gain. Tencent Holdings Ltd., Asia’s largest Internet company, reported results after the close.

China Mobile Ltd. advanced 2 percent to HK$87.35, China Unicom (Hong Kong) Ltd. rose 1.9 percent to HK$13.02 and China Telecom Corp. jumped 2.4 percent to HK$4.24. The mainland’s biggest telecommunications operators are drafting reform plans to open the Internet, information and data analysis services to private investment, the Economic Information Daily reported, citing an unidentified person.

The surge of recent inflows to Hong Kong could be caused by a recovery in mainland growth and the purchase of offshore Chinese stocks by foreign investors because of plans for mutual market access between the city’s bourse and Shanghai, Goldman Sachs Group Inc. said in a note dated yesterday.

Trading Link

Trading rules for mainland shares through the planned cross-border equity link need to be more similar to Hong Kong’s to draw investors, the city’s brokers told Shanghai bourse officials at a meeting yesterday, said Martin Sin, an assistant to lawmaker Christopher Cheung, who represents securities firms. The brokers want to be allowed to day trade mainland stocks when the link starts, Sin said. They also asked for more clarity on rules including short selling.

Futures on the S&P 500 rose 0.4 percent today. The U.S. benchmark index slid 0.2 percent yesterday as investors watched geopolitical developments and energy shares sank after Brent crude fell to a 13-month low. A report yesterday showed U.S. job openings rose in June to the highest in more than 13 years, firming up the labor-market picture for the second half.

A convoy Russia says is loaded with humanitarian assistance for rebel-held areas of Ukraine headed for the border, as the government in Kiev set conditions for letting the aid in and the Red Cross demanded more details. Ukraine expressed fears the convoy is carrying military equipment to aid the pro-Russia separatists.

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