MSCI Hong Kong Index Rises to Record After 21% Rebound

The MSCI Hong Kong Index rose to a record, rebounding 21 percent from a February low, as the city’s bourse operator led gains on optimism about a stock-trading link with Shanghai and developers jumped on record home prices.

Hong Kong Exchanges & Clearing Ltd. surged 54 percent since Feb. 5, while Henderson Land Development Co. climbed 39 percent. PCCW Ltd., the conglomerate controlled by billionaire Richard Li with interests from telecommunications to real estate, today rose to an eight-year high.

The MSCI Hong Kong Index climbed 1.3 percent to 13,590.53 as markets closed in the city today, surpassing its all-time high reached in October 2007. The benchmark Hang Seng Index extended gains after closing at its highest in six years yesterday. The Hang Seng China Enterprises Index of mainland companies entered a bull market last month after the government deployed targeted measures to boost flagging growth.

“Hong Kong shares have been playing catch up with the rest of the world,” Khiem Do, who helps oversee about $60 billion as Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd. “The earnings outlook has been upgraded and policy settings look supportive. We’re likely to see more liquidity flows as a result of the Shanghai-Hong Kong connect.”

JPMorgan Chase & Co. and Pictet Asset Management Ltd. are among those tipping more gains for Hong Kong shares amid optimism the city’s equities can withstand reduced Federal Reserve stimulus and that Chinese policy makers will bolster growth in the world’s second-biggest economy. Hong Kong’s de facto central bank spent $9.7 billion since the start of July to maintain its currency peg to the U.S. dollar, intervening for the first time since 2012 as money flows into the city.

Relative Value

The 39-member MSCI Hong Kong gauge advanced 11 percent this year, while an MSCI gauge of shares across the Asia-Pacific region gained 5.1 percent. The Hong Kong measure trades at 16.8 times estimated earnings, compared with 11.6 for the Hang Seng Index and 16.6 for the Standard & Poor’s 500 Index yesterday.

Anticipation for cross-border trading through Shanghai has boosted Hong Kong Exchanges shares since the plan was announced in April amid optimism for increased turnover. The program, expected to start in October, will offer unprecedented access to China’s $3.7 trillion equity market while opening a route for wealthy mainland investors to buy Hong Kong stocks.

Henderson Land, Cheung Kong (Holdings) Ltd. and Sun Hung Kai Properties Ltd. have surged as real estate prices more than doubled since 2008 as Hong Kong benefited from near-zero U.S. interest rates due to the city currency’s peg to the greenback. Home prices rose to a record for a second week in the period ended Aug. 10, according to data from Centaline Property Agency Ltd., even after the city introduced measures to cool the market and the Fed started winding down its bond-buying program.

Rate Optimism

U.S. inflation weakened to the slowest pace in five months in July, a report showed yesterday, holding below the Fed’s target and giving policy makers room to keep interest rates low well after the projected end of asset purchases in October.

The Hang Seng Index today added 0.2 percent to 25,159.76, while the Hang Seng China Enterprises Index, also known as the H-share index, slid 0.4 percent to 11,055.98.

Techtronic Industries Co., a maker of power tools that gets more than 70 percent of sales from North America, jumped 5.1 percent to HK$25.75 as exporters advanced. Brilliance China Automotive Holdings Ltd. gained 2.3 percent to HK$14.52 after reporting a surge in profit. Biostime International Holdings Ltd. tumbled 11 percent to HK$33.05 after the infant-formula maker’s first-half results missed estimates. PCCW added 1.4 percent.

Rally Outlook

The Hang Seng Index may rally to 32,000 points if it holds above 25,000 this week, JPMorgan analyst Sunil Garg wrote in a note. There’s still more upside for Hong Kong shares as they’re cheaper than regional peers and the share-trading link will bolster Hong Kong’s position as China’s financial center, Pauline Dan, who helps oversee $153 billion as Hong Kong-based head of greater China equities at Pictet, said Aug. 4.

The last time the MSCI Hong Kong Index closed at a record was on Oct. 29, 2007, amid speculation the Fed would cut interest rates and expectations for relaxed restrictions on mainland investors gaining access to the city’s shares. The Hang Seng Index posted its biggest one-day drop in six years in November 2007 after then-Chinese Premier Wen Jiabao backtracked on the equity-access plan.

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