Chinese Stocks Rally in Hong Kong as Energy Producers Rebound

  • Gauge trades at biggest discount to global shares in 12 years
  • Energy producers lead rebound after falling to multi-year lows

Chinese stocks in Hong Kong rallied the most in a month after valuations on the benchmark gauge fell to their lowest level relative to global peers in 12 years. Oil producers led the rebound, while the yuan fell for a ninth day.

The Hang Seng China Enterprises Index climbed 2.1 percent to 9,538.66 at the close, the steepest advance since Nov. 4. PetroChina Co. and China Petroleum & Chemical Corp., which fell to their lowest levels in at least six years this week, surged after the government signaled it won’t cut fuel prices. The Shanghai Composite Index gained 0.2 percent at the close. The yuan dropped 0.16 percent in its longest losing streak since at least 2007.

The H-share index fell 37 percent from this year’s high in May through Monday, the steepest drop among equity gauges in the world’s 50 biggest markets, on concern an economic slowdown and a falling yuan would hurt earnings growth. Shares are staging a technical recovery before the outcome of Wednesday’s Federal Reserve meeting, according to Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. The Hang Seng China gauge’s relative strength index fell to 28 this week, below the 30 level that some traders use as a signal to buy.

"Valuations are low and a bit attractive,” Wei said. “The government’s pledge not to cut fuel prices amid heavy pollution will help refiners like Sinopec to maintain their profitability,’ she said, using the abbreviated name for China Petroleum.

The H-share index traded at 6.9 times earnings at the start of the week, lower than every benchmark index apart from Zambia, the southern African country facing a economic crisis, and Laos, which only has four listed equities. The gauge was valued at the biggest discount versus the MSCI All-Country World Index since 2003, according to data compiled by Bloomberg.

Hao Hong, the chief China strategist at Bocom International Holdings Co. in Hong Kong, said he sees little impact on mainland equities from the first possible increase in U.S. borrowing costs since 2006. Traders are pricing in a 78 percent chance of a liftoff.

“For today’s market action in Hong Kong, traders are positioning for a dovish hike and are covering short positions,” Hong said. “I think the impact will be mostly neutral.” 

Refiners Jump

The Hang Seng Index advanced 2 percent to snap its longest losing streak since 1984. The CSI 300 Index slipped 0.2 percent, dragged down by phone and consumer companies.

Sinopec jumped 7.3 percent in Hong Kong, the biggest gain since Sept. 9, while PetroChina gained 5 percent. Shanghai-listed shares of Sinopec and PetroChina climbed at least 1.1 percent. Sinopec Shanghai Petrochemical Co. surged by the 10 percent daily limit.

Using fuel prices to balance the country’s energy consumption is an important tool and the government has decided to use it now to curb petroleum consumption that has ”increased too fast,” the National Development and Reform Commission, the country’s price regulator, said in a statement dated Dec. 15. Auto emissions are part of the reason for worsening air pollution, the NDRC said.

The NDRC’s move may help protect the oil sector’s profits and lead to energy conservation amid global crude oil price declines, China International Capital Corp. analysts led by Bin Guan wrote in a note.

Stocks Outlook

Prada SpA plunged 9.2 percent to a record low in Hong Kong trading after the company reported third-quarter profit that missed analyst estimates as sales in the Asian city and Macau continued to weaken.

In mainland trading, property developers fell before Friday’s home sales data. China Vanke Co. slid 4.2 percent after rising 7.9 percent over the past three days. Poly Real Estate Group Co. dropped 2.2 percent.

China’s stocks are likely to see the maximum upside among Asian peers in 2016 with the Shanghai index reaching 4,198 points by end of the year, BNP Paribas SA equity strategist Manishi Raychaudhuri wrote in a note. Reforms are likely to accelerate in areas including infrastructure and the financial sector next year, he wrote.

The Chinese Academy of Social Sciences predicts a “slow bull” market, with the Shanghai Composite fluctuating between 3,200 and 4,000. Property prices will become a “growth stabilizer” as real estate investment rebounds, according to the country’s top government-backed research organization. Economic growth will slow next year to between 6.6 and 6.8 percent, the researchers said in their annual report.

— With assistance by Shidong Zhang

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