China Stocks in Hong Kong Rise to Three-Week High on Industrials

  • CRRC Corp. rallies on private share-sale plan to reduce debt
  • A-share premium over Hong Kong peers falls to one-month low

Chinese stocks in Hong Kong climbed to a three-week high, paced by a rally in industrial and automobile companies, as cheaper valuations relative to their mainland peers lured buyers.

The Hang Seng China Enterprises Index rose 0.3 percent. The Shanghai Composite Index added 0.1 percent after six straight weeks of declines, its longest losing stretch since 2012. The Shanghai and Shenzhen stock exchanges on Friday published rules restricting trading halts in a move that raises the odds of the country’s shares being included in MSCI Inc.’s benchmark indexes.

At just under seven times its projected 12-month earnings, the Hang Seng China index is valued at a 43 percent discount to the Shanghai gauge. The gains in Hong Kong narrowed the premium that mainland shares command over their dual-listed counterparts in the city to about 33 percent.

“H share valuations are a lot cheaper than mainland A shares, so that’s attracting some institutional buying,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai. “The new rule on trading halts will be good news in the medium and long term by regulating abuse of power.”

The new rules published by Chinese stock exchanges are aimed at curbing arbitrary suspensions in Chinese stocks, and halts will be capped at three months for major asset restructuring and one month during private placements, the exchanges said in separate statements. The bourses had allowed trading suspensions to shut down half the stock market as officials struggled to stop a $5 trillion selloff last summer.

A-Share Premium

The Hang Seng China index was at 8,624.76 at the close, erasing a loss of as much as 0.8 percent, while the Hang Seng Index added 0.3 percent. The Shanghai Composite closed little changed and the CSI 300 Index rose 0.1 percent. The Hang Seng China AH Premium Index declined 0.2 percent.

The Hang Seng China index has fallen 11 percent this year. The Shanghai Composite is the worst performer among 93 global benchmarks tracked by Bloomberg after dropping 20 percent amid concern that the nation’s economic rebound is faltering.

An official manufacturing index due to be released on Wednesday probably fell to 50 this month from 50.1 in April, according to the median of estimates in a Bloomberg survey. Numbers greater than 50 indicate an expansion. Data last week showed Chinese industrial companies’ profit growth slowed to 4.2 percent in April.

CRRC Rallies

CRRC Corp. rallied to lead a gauge of industrial companies after the nation’s only maker of high-speed locomotives announced plans to raise as much as $1.8 billion in a private share sale to repay debt and help finance its daily operations. The company, which was created last year by a merger of trainmakers CSR Corp. and China CNR Corp., advanced 1.7 percent in Hong Kong and 4.4 percent in Shanghai.

Dongfeng Motor Group Co. climbed 4.5 percent in Hong Kong, capping a fourth day of advances. The stock will continue its rebound in the coming quarter because of a potential earnings surprise in the first half and faster sales growth, Credit Suisse Group AG analysts led by Wang Bin wrote in a report. Its competitor Great Wall Motor Co. gained 3.5 percent.

— With assistance by Shidong Zhang

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