Chinese Stocks Halt Losing Streak in Hong Kong; Shanghai Drops

  • Financial, material shares lead gains after U.S. shares surge
  • BNP Paribas recommends staying overweight on Chinese equities

Chinese stocks rose for the first time in six days in Hong Kong trading, led by financial and material companies, as global equities tracked gains in U.S. shares after the latter recouped all of their losses from China’s August shock yuan devaluation. Mainland equities fell.

The Hang Seng China Enterprises Index advanced 0.4 percent to 10,283.42 at the close in Hong Kong, halting a five-day, 4.7 percent losing streak that was the longest since early September. China Life Insurance Co. and Jiangxi Copper Co. gained at least 1.2 percent. The Shanghai Composite Index slipped 0.3 percent as drug and consumer shares dropped.

The H-shares gauge has rebounded 13 percent from a September low as the government introduced more measures to boost growth amid the slowest economic expansion in a quarter of a century. Policy makers are forecast to push money-market rates lower in the remainder of 2015 by making it cheaper for banks to borrow funds using a short-term lending tool. Official data released over the weekend showed manufacturing contracted for a third month.

“Today’s gains came as the market is recovering from an overreaction yesterday,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. “The market is in a consolidation stage overall.”

Overweight China

The CSI 300 Index fell 0.3 percent. Hong Kong’s Hang Seng Index climbed 0.9 percent. Trading volumes in Shanghai were 31 percent below the 30-day average. The Bloomberg China-US Equity Index rose 1.5 percent in New York on Monday as the Standard & Poor’s jumped 1.2 percent to the highest level since Aug. 10 -- the day before China’s devaluation of its currency sparked turmoil on global financial markets.

Investors should stay overweight on Chinese equities given relatively low valuations, an earnings recovery and policy support, Manishi Raychaudhuri, the head of research at BNP Paribas SA, wrote in a note. Valuations for H shares are near the low end of a historical range, while room for further monetary stimulus is “immense,” he wrote.

Policy Outlook

China’s central bank is shifting the focus of its monetary policy toward guiding short-term borrowing costs as interest-rate liberalization gives lenders a freer hand in setting rates on loans and deposits. The authority lowered its benchmark one-year rates to record lows in October and economists surveyed by Bloomberg predict there’ll be no more adjustments to those through 2016.

The H-shares gauge trades at 7.3 times projected 12-month earnings, compared with a record low of 6.5 set in January 2014 and the Shanghai Composite’s multiple of 12.9, according to data compiled by Bloomberg.

In Hong Kong, Dongfeng Motor Group Co. rallied 4.2 percent, while China Vanke Co. added 2.8 percent.

Mainland equities declined amid concern the government is widening probes into market manipulation and insider trading after detaining a top-performing hedge-fund manager. Agricultural Bank of China Ltd. President Zhang Yun was taken away to assist authorities with an investigation, people familiar with the matter said. The people, who asked not to be identified, didn’t give details on who is conducting the probe or what it’s related to. Agricultural Bank dropped 1.3 percent in Shanghai.

Seven Star

Health-care shares and baby-related companies led the retreat in Shanghai. Lepu Medical Technology Beijing Co. slid 2.6 percent, trimming this year’s gain to 60 percent. Beingmate Baby & Child Food Co. slumped 8.1 percent, paring a month-long rally to 28 percent. Baby-related stocks had rallied after President Xi Jinping’s government announced last week it would end a one-child policy in place for more than three decades.

China Seven Star Holdings Ltd., a media management company, slumped 29 percent in Hong Kong trading, the most in two months, after saying it can’t reach Xu Xiang, who was among subscribers in a share offering. Xu, the hedge fund manager who is latest target of the government’s crackdown following a $5 trillion summer stock market rout, is facing a probe for alleged insider trading and stock manipulation, according to state media.

Rastar Group jumped by the 10 percent daily limit in Shenzhen after the toy company announced plans to buy a stake in a Spanish soccer team.

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