Hong Kong Stocks Sit Atop Asia This Year as China Fears Subside

  • Hang Seng Index rises to highest since October on Wednesday
  • Developers to automakers have rallied on earnings optimism

Hong Kong equity investors have reason to celebrate.

The city’s benchmark stock gauge has climbed almost 7 percent in 2017, the best performance in Asia, and closed on Wednesday at the highest level since October. Large-cap companies listed in the city, from developers to automakers, are up by double digits this year, with analysts attributing the gains to increasing confidence in their earnings outlook.

The bullishness is a far cry from the end of 2016, when concern over a tumbling yuan, dwindling inflows from the mainland and rising borrowing costs was pummeling the city’s shares. With China’s currency rebounding against the greenback and the nation’s economy showing signs of accelerating, investors are pouncing on beaten-down industries with the greatest prospect for profit growth.

A gauge of Chinese real-estate companies surged 5.7 percent on Wednesday, the most in almost a year, after analysts at Goldman Sachs Group Inc. and Citigroup Inc. said the stocks are in far better shape than their rock-bottom valuations indicate. Great Wall Motor Co. extended its 2017 gain to 19 percent, while BYD Co. jumped the most in 12 months. Consensus earnings estimates have been raised for both last year and this year for most Chinese automakers, according to a note by Bloomberg Intelligence.

Bourse Operator

Speculation the start date of a bond connect program with the mainland will be announced and China index futures restrictions will be eased at an annual securities conference this week helped propel Hong Kong Exchanges & Clearing Ltd. up 4.7 percent, while brokerages accounted for half of the 10 biggest gainers on a gauge of Chinese stocks listed in the city.

The Hang Seng Index climbed 0.7 percent to 23,485.13 on Wednesday, while the Hang Seng China Enterprises Index advanced 1.1 percent.

Investors should overweight Hong Kong-listed Chinese stocks as rising producer prices signal a stronger economy and inflows from mainland investors pick up, CLSA Ltd. equity strategist Christopher Wood said at briefing in Hong Kong on Tuesday. China’s factory gate prices jumped at the fastest pace in five years in December.

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