Hong Kong Stocks Rally to Nine-Month High on Earnings Optimism

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  • Tencent, Lenovo jump after profit beats analyst estimates
  • China developers rise after record sale for Shanghai plot

What Tencent's Earnings Tell Us About China's Economy

Hong Kong stocks climbed to their highest level since November after Tencent Holdings Ltd., Ping An Insurance (Group) Co. and Lenovo Group Ltd. earnings topped estimates.

The Hang Seng Index added 1 percent at the close. Tencent, which has the biggest weighting on the gauge, surged to a record after reporting a 47 percent rise in quarterly profit. Ping An Insurance and Lenovo gained at least 2.2 percent. A measure of mainland financial companies erased gains after people with knowledge of the matter said state-backed funds had sold bank shares on Tuesday.

Hong Kong’s benchmark equity index has advanced 26 percent from its February low, one of the world’s best performances, as fears of a Chinese hard landing receded and the city’s property market stabilized amid an improving interest-rate outlook. The announcement of a long-delayed exchange link with Shenzhen this week and better-than-expected corporate profits have given extra vigor to the rally, even as technical indicators flash a warning that gains may be overheating.

“There’s a euphoria,” said Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong. “Given the economic conditions, investors were not expecting too much from earnings.”

Earnings Reports

Tencent jumped 5.2 percent, taking its rally in 2016 to 33 percent, the most among Hang Seng Index constituents. Second-quarter sales and profit beat analysts’ estimates as the operator of the WeChat and QQ social network services splashed out on mobile games and content. Ping An, China’s second-largest insurer, advanced 2.5 percent after saying its first-half profit rose 18 percent.

Lenovo climbed 2.2 percent. The world’s biggest PC maker posted a 64 percent gain in first-quarter profit as it cut costs and was helped by new Motorola smartphone models.

China Unicom (Hong Kong) Ltd. jumped 7.7 percent, the biggest gainer on the Hang Seng Index, even as its first-half net income tumbled 80 percent. Chief Executive Officer Wang Xiaochu said the worst will soon be over for the company and that profit is likely to rise in the first half of next year.

Cathay Pacific Airways Ltd. slumped for a second day after its first-half profit tumbled 82 percent. Swire Pacific Ltd., a conglomerate that owns a controlling stake in the airline, slid 2 percent after reporting a fall in its half-yearly earnings. Swire Properties Ltd. also dropped 2 percent after its underlying profit declined during the six-month period.

The Hang Seng Index climbed to 23,023.16. The gauge’s 14-day relative strength index was at 70.8 at Thursday’s close, above the threshold of 70 that signals to some traders a rally is about to reverse. The Hang Seng China Enterprises Index increased 0.1 percent.

Financial Shares

The Shanghai Composite slipped 0.2 percent at the close. China Securities Finance Corp. and other government-linked funds sold shares including Bank of Ningbo Co. on Tuesday, according to the people, who asked not to be identified because the information isn’t public.

Bank of Ningbo slumped 6.8 percent in Shenzhen on Tuesday, a day after the Shanghai gauge jumped to its highest close since Jan. 8. The lender advanced 1 percent on Thursday. A measure of mainland financial companies on the CSI 300 Index lost 0.2 percent, after rising as much as 1.3 percent earlier.

The Shanghai Property Index added 0.9 percent, after a plot of land in Shanghai sold for a record, underscoring soaring asset prices in China’s biggest cities. The gauge has risen 15 percent this month amid speculation that merger activity in the industry will accelerate after China Evergrande Group acquired stakes in China Vanke Co. and Langfang Development Co.

Beijing North Star Co. climbed 1.8 percent in Shanghai after the property developer’s six-month profit increased about 30 percent from a year earlier. Longfor Properties Co. extended its gains in Hong Kong, adding 4.8 percent after saying its first-half core profit climbed. Country Garden Holdings Co. jumped 5.3 percent after the Chinese real estate developer reported during the trading break first-half core net income that beat estimates.