China H Shares Advance Most in Five Weeks on Mainland Buying

  • Concern over yuan weakness may lure Chinese buyers, KGI says
  • CGN Power extends gains after U.K. approval for EDF’s project

China’s stocks jumped the most in five weeks in Hong Kong, led by financial and construction-related companies, as mainland investors extended a buying spree following last week’s holidays.

The Hang Seng China Enterprises Index climbed 1.6 percent at the close, its biggest gain since Aug. 15. Industrial & Commercial Bank of China Ltd. led gains by lenders, while CGN Power Co. rose to a one-week high. The H-share gauge tumbled 4.6 percent last week, the largest loss in four months, as traders scaled back bets for new stimulus by global central banks. Hong Kong’s markets were closed Friday for a holiday, while those in the mainland were also shut on Thursday. The Shanghai Composite Index added 0.8 percent.

Net daily buying of Hong Kong equities through an exchange link with Shanghai reached the highest since April 2015 on Sept. 9 as cheaper valuations and the wish to protect against a depreciating yuan lured investors. Dual-listed shares are 20 percent more expensive in the mainland than in the former British colony.

“Mainland buying will probably continue in following months as concern about a weaker yuan is rising,” said Ken Chen, a strategist at KGI Securities Co. in Shanghai. “Low valuations of Hong Kong stocks also make them a preferred target by global investors.”

The Hang Seng China Enterprises Index rose to 9,747.75. The gauge trades at 8.4 times earnings, compared with 21 times for the MSCI All-Country World Index. The Hang Seng Index added 0.9 percent.

Hibor Rates

The equity rebound on Monday came as the overnight interbank yuan rate in Hong Kong, known as Hibor, surged the most since January amid speculation China’s central bank is intervening to fend off bearish bets on the currency. The offshore yuan funding cost jumped 15.7 percentage points in its second-biggest gain on record to 23.7 percent, according to a fixing from the Treasury Markets Association. The People’s Bank of China strengthened the yuan’s fixing by 0.16 percent Monday despite the dollar’s gains on Friday.

“The move is aimed at stabilizing the yuan by raising the costs of shorting,” said Cliff Zhao, a strategist at China Merchants Securities HK Co. “A stabilization in the yuan is good for China-related assets.”

Casino shares retreated in Hong Kong, with Sands China Ltd. sliding 4.6 percent to pare this year’s gains to 29 percent, while Wynn Macau Ltd. dropped 1.9 percent. Nomura Holdings Inc. recommends avoiding the two stocks as industry valuations appear to be stretched, analysts Richard Huang and Stella Xing wrote in a note dated Sept. 15.

Nuclear Plant

CGN Power climbed 2.1 percent, extending Thursday’s gain after the U.K. government approved Electricite de France SA’s plan to build two nuclear reactors for 18 billion pounds ($23.5 billion) in southwest England. CGN Power is a unit of state-owned China General Nuclear Power Corp., which is due to provide a third of the finance for the project.

China Longyuan Power and Huaneng Power International Inc. advanced at least 2.1 percent in Hong Kong. China’s power consumption growth accelerated 8.3 percent in August from a year earlier, compared with a rate of 8.2 percent in July and 2.6 percent in June, according to the National Energy Administration.

China High Speed Transmission Equipment Group Co. jumped 5.2 percent in Hong Kong after Fullshare Holdings Ltd. said it will buy the company in a deal valued at HK$17.9 billion ($2.3 billion). Fullshare shares climbed 4.1 percent to a record high.

“A rebound in the economy has helped the power industry,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai. “There’s some sign of an inflection point for the industry.”

China is seen keeping its deep pockets open in the second half and through 2017, despite having front-loaded spending earlier this year, as fiscal policy takes over from broad monetary easing as the major prop to growth. The central government’s fiscal deficit will surpass the target of 3 percent of gross domestic product set for 2016, according to economists surveyed by Bloomberg News.

Home Prices

New-home prices, excluding government-subsidized housing, gained last month in 64 of the 70 cities the government tracks, compared with 51 in July, the National Bureau of Statistics said Monday. 

“The housing price data look good, but that’ll raise concern that policies will be further tightened,” said KGI Securities’s Chen.

The eastern city of Hangzhou tightened some house purchase rules, asking developers and real estate agencies not to sell homes in some urban areas to non-local residents or non-residents who own an apartment already, according to an official statement.

— With assistance by Shidong Zhang

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