Photographer: David Paul Morris/Bloomberg

Chinese Stocks in Hong Kong Enter Bull Market; Shanghai Rebounds

  • Shanghai Composite caps biggest monthly gain in almost a year
  • Dalian Wanda Commercial rallies on parent's privatization bid

China’s Shanghai Composite Index capped its steepest monthly advance in almost a year, while a gauge of Chinese companies trading in Hong Kong entered a bull market amid signs the nation’s economy and currency are stabilizing.

The Shanghai Composite rebounded 12 percent in March, led by consumer and technology companies. Hong Kong’s Hang Seng China Enterprises Index entered a bull market on Thursday after rising 20 percent from the February low. Chongqing Changan Automobile Co. jumped to a two-month high on a private share sale plan. The offshore yuan headed for the strongest quarterly performance in more than four years.

China’s economy is showing signs of stabilizing, Premier Li Keqiang said last week at the Boao Forum. A report last weekend showed industrial profits halted declines to surge 4.8 percent in the first two months of the year, while manufacturing data on Friday will probably show improvement. The Purchasing Managers’ Index likely rose to 49.4 percent in March from the previous month’s 49, according to the median estimate of a survey by Bloomberg.

“The market still has very good sentiment after the recent rebound as economic data and the external market environment have calmed,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “Mainland stocks will probably catch up with gains in H shares.”

March Rebound

The Shanghai Composite rose 0.1 percent to 3,003.92 on Thursday. The so-called H-share index added 0.3 percent, extending its gain since a Feb. 12 low to 20 percent, a level which signals a bull market to some traders. The CSI 300 Index advanced 0.1 percent and finished the month 12 percent higher. The Hang Seng Index slipped 0.1 percent, paring the March gain to 8.7 percent.

Chinese stocks in Hong Kong rebounded after the yuan stabilized, central banks around the world took steps to boost stimulus and commodity prices rebounded. The H-shares gauge traded as low as 5.6 times reported earnings last month, the cheapest since at least 2001, according to data compiled by Bloomberg.

“It’s a bounce back from an oversold situation," said Rahul Chadha, co-chief investment officer at Mirae Asset Global Investments, which oversees about $75 billion. “Valuations were so cheap and positioning was so bearish that no bad news was good news."

In Hong Kong, Dalian Wanda Commercial Properties Co. soared a record 18 percent after billionaire Wang Jianlin’s Dalian Wanda Group said it’s considering acquiring all outstanding Hong Kong-listed shares of its property unit for at least HK$31.3 billion ($4 billion).

The offshore yuan strengthened 0.06 percent to 6.4726 a dollar in Hong Kong on Thursday, extending its gain for the quarter to 1.46 percent. That’s the most since the three months through December 2011.

The Shanghai gauge closed out the first quarter as the world’s worst-performing global measure, with the March rebound failing to compensate for a terrible start to the year. While some analysts question the sustainability of the rally amid signs state funds propped up equities during the annual legislative meetings, others point to recent positive indicators such as growth in margin lending, a jump in the number of new investors and easing volatility.

Gauges of industrial and consumer-discretionary stocks in the CSI 300 both climbed 0.6 percent for the biggest gains in the 10 industry groups on Thursday. Chongqing Changan Automobile surged 10 percent after the company announced the private share sale. Citic Heavy Industries Co. rallied by the 10 percent daily limit.

Margin Trading

Hundsun Technologies Inc. jumped 54 percent this month. A state-backed agency restarted offering some loans to brokerages to fund clients’ borrowed bets, signaling a loosening of policies put in place to stem the market rout. Leverage is increasing, suggesting individual investors are slowly regaining confidence after getting burned last year. The value of outstanding margin loans, the fuel for the 2015 boom, is up about 6 percent to about 874 billion yuan since touching a 15-month low on March 16.

Wuliangye Yibin Co. paced a rally for consumer shares in March, jumping 18 percent after the liquor maker reported a 6 percent gain in annual net income. Buoyed by healthy wage gains, consumer spending has proven resilient to the slowdown in old growth drivers like manufacturing and housing investment.

While the valuation of the Shanghai Composite is almost down 40 percent from a June high, it’s still 15 percent pricier than the MSCI Emerging Market index, according to data compiled by Bloomberg.

MSCI Inc. said China’s inclusion in global benchmark stock indexes will rest on whether authorities are prepared to prevent a repeat of the trading halts that closed down half the market amid last year’s rout.

Investors remain concerned about liquidity risks, the index provider said in a statement announcing a fresh round of discussions on whether to add mainland equities to its emerging-markets gauge. A decision is due in June.

— With assistance by Shidong Zhang

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