Hong Kong Stocks Rise as Shenzhen Link Optimism Lifts Brokerages

  • HKEx shares gain after CEO Charles Li says connect is imminent
  • Exchange says in statement it’s awaiting regulatory approval

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Hong Kong stocks climbed to an eight-month high as speculation the start date of an exchange trading link with Shenzhen will soon be announced boosted brokerages.

The Hang Seng Index climbed as much as 0.9 percent after Hong Kong Exchanges & Clearing Ltd.’s chief executive officer Charles Li told CNBC in an interview the link with Shenzhen was “imminent." It pared gains to close up 0.4 percent as the bourse operator later said in a statement it was awaiting regulatory approval for the connect. Guotai Junan International Holdings Ltd. surged 8.3 percent, while HKEx rose the most since April. Mainland investors appeared unimpressed by Li’s comments, with the Shenzhen Composite Index slumping 1.3 percent at the close, led by small-cap shares.

“Mainland investors believe the Shenzhen link is only a matter of time,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “They are also skeptical if foreign investors will come to buy these expensive small-caps.”

Delayed Start

Investors have been disappointed repeatedly before by betting on the start date of the long-delayed link, which will expand an existing program between Shanghai and Hong Kong and may enable mainland investors to access more of the city’s stocks. China’s securities regulator has set up a team to prepare for the start of the link and coordinate with its Hong Kong counterpart, Caixin reported on its WeChat account, without citing anyone.

The Hang Seng Index rose to 22,580.55, while the Hang Seng China Enterprises Index gained 1.2 percent, capping a sixth day of advances. The ChiNext Index slid 1.6 percent in Shenzhen, the most in two weeks. The 100-stock ChiNext gauge is valued at more than 30 times its projected 12-month earnings, compared with a multiple of less than 12 for the Hang Seng Index.

Guotai Junan rose to its highest level since November. Citic Securities Co. and Haitong Securities Co. climbed at least 3.8 percent in Hong Kong. HKEx gained 2.9 percent. Li told CNBC he is upbeat about the stock connect plan and said there’s still time to set it up. The HKEx said it’s technically ready for the link program and that a preparatory period of up to four months will be required for the markets after regulators give their approval.

HKEx and brokerages were climbing on speculation the Shenzhen connect will be announced, said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “There is so little news around that, apart from results, this kind of story attracts day traders or retail speculation.”

New China Life Insurance Co. rallied 3.2 percent, the most since May 25. Fosun International Ltd. and four of its affiliates increased their combined stake in the company to 5.01 percent, the insurer said in an exchange filing.

Bad Loans

Industrial & Commercial Bank of China, China’s largest lender by assets, climbed 2.2 percent to its highest level this year in Hong Kong, while China Merchants Bank Co. gained 3.1 percent.

China’s official bad-loan ratio held at 1.75 percent in the second quarter after almost three years of increases, the China Banking Regulatory Commission said on Wednesday. The data suggest some progress has been made as officials try to defuse risks from an explosion in the nation’s credit.

Still, doubts remained. BMI Research, a part of Fitch Group, said on Wednesday that the “highly understated” official numbers mask the potential for a bad-loan ratio at 20 percent, $1.9 trillion of losses, and the need for central bank money-printing to recapitalize banks in coming years.

Huaxia Bank Co. and Shanghai Pudong Development Bank Co. climbed at least 1.5 percent on the mainland after their first-half earnings reports. The Shanghai Composite Index fell 0.5 percent.

— With assistance by Shidong Zhang

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