Hong Kong Shares Record Best Month Since March as Yuan Rebounds

  • Offshore yuan’s January gain most since 2011 as dollar drops
  • Equity trading ended at noon before holiday through Tuesday

Hong Kong shares posted their biggest monthly gain in 10 months, buoyed by a rebound in the offshore yuan and optimism that U.S. economic growth will pick up.

The Hang Seng Index closed little changed Friday, recording a 6.2 percent advance for January, the most since March. The offshore yuan appreciated 1.5 percent this month, set for the biggest gain since October 2011. Equity trading in Hong Kong ended at noon Friday and will resume on Feb. 1 after the Lunar New Year holidays. Chinese onshore markets are shut through Feb. 2.

A 1.3 percent drop in the Bloomberg Dollar Spot Index so far this year has brought some relief to Chinese assets after accelerated declines in the yuan and increased capital outflows weighed on the nation’s bonds and equities in December. Global shares rallied this month -- with the Dow Jones Industrial Average reaching a record -- amid strengthening earnings and optimism that President Donald Trump will boost fiscal spending in the U.S. Hong Kong’s currency peg to the U.S. dollar means the city has to follow American monetary policy.

“The focus was on the external environment this month,” Banny Lam, head of research at CEB International Investment Ltd. in Hong Kong, said in an interview Thursday. “The atmosphere was better, which helped Hong Kong stocks catch up since valuations are still low and stocks had fallen even further earlier.”

With a price-to-earnings ratio of 12.95, Hong Kong is still home to Asia’s cheapest stock market. It received 18.2 billion yuan ($2.64 billion) of inflows from the mainland this month as Chinese investors took advantage of a stock link to diversify portfolios and buy the city’s cheaper shares.

The Hong Kong Hang Seng Properties Index has jumped 9.5 percent this month in the biggest increase since July. Hang Lung Properties Ltd. surged 17 percent in January, the biggest gain on the benchmark Hang Seng Index. China Overseas Land & Investment Ltd. climbed 12 percent, the most since April 2015.

A measure of home prices rose to near a record high at the end of December, weathering an increase in U.S. interest rates and a stamp duty that was imposed in November. Hong Kong’s residential property market is likely to hold up well in 2017, with a forecast 5 percent year-on-year rise in prices, Daiwa Capital Markets Hong Kong Ltd. analyst Jonas Kan wrote in a Jan. 26 note.

The offshore yuan weakened 0.3 percent on Friday to 6.8723 per dollar. The Chinese currency traded in Hong Kong has rebounded this month after a three-year decline against the dollar. Efforts by the nation’s policy makers to curb capital outflows -- including increasing scrutiny of cross-border transactions and a freeze on outbound investment quotas -- have supported China’s exchange rate. Signs of monetary policy tightening have helped as well, limiting the supply of yuan onshore.

The currency fell 5.8 percent against the dollar in Hong Kong last year, the most in data going back to 2010. Yuan deposits in Hong Kong posted their biggest monthly drop on record in December, slipping 12.9 percent on the month to 546.7 billion yuan ($79.4 billion), Hong Kong Monetary Authority data showed Friday. That’s the biggest decline since local banks started taking such funds in 2004.

The Shanghai Composite Index climbed 1.8 percent in January, rallying after a 4.5 percent loss in December that was the most in 11 months. The Hang Seng China Enterprises Index has advanced 4.4 percent this year. The measure of Chinese stocks traded in Hong Kong fell 0.5 percent Friday.

Bonds Drop

Chinese onshore sovereign bonds declined this month, with the benchmark 10-year yield jumping 34 basis points, the most since October 2010, as policy makers tightened funding conditions to curb inflation and leverage.

  • Power Assets Holdings Ltd. advanced 2.8% on Friday, the most among shares on the Hang Seng Index, after the firm owned by billionaire Li Ka-shing announced its first special dividend in more than a decade.
  • Cheung Kong Infrastructure Holdings Ltd., which is also in Li’s empire and stands to receive more than $500 million as Power Assets’ biggest shareholder, rose 2.1%; CK Hutchison Holdings Ltd. gained 1.3%.
  • AAC Technologies Holdings Inc. fell 1.1% after a 14-day Relative Strength Index signaled the stock had been overbought.
  • Wynn Macau Ltd. climbed as much as 4.8% to an eight-week high as Wynn Resorts Ltd. reported Macau operations that beat analysts’ estimates and as Chief Executive Officer Steve Wynn said the mass-market business in Macau was good.
Before it's here, it's on the Bloomberg Terminal.