China H Shares Rally to 14-Month High as Autos, Financials Climb

  • Mainland investors are targeting cheap large-caps: analyst
  • Gauge of automakers jumps to highest level since April 2015

Investors Hone in on China H Shares

Chinese stocks in Hong Kong climbed to a 14-month high as investors honed in on some of the world’s cheapest equities. Automakers and financial shares led gains.

The Hang Seng China Enterprises Index rose 1.2 percent, breaking through the psychological 10,000 index level milestone to close at 10,075.17, the highest since November 2015. The Hang Seng Index added 0.2 percent, while the Shanghai Composite Index rose for a second day to close 0.5 percent higher.

Investors are pouncing on beaten-down stocks in Hong Kong as China’s economy shows signs of accelerating and uncertainty about U.S. President Donald Trump’s policy priorities spurs some to question the outlook for the U.S. equity market. After sinking 22 percent in the two years through Dec. 31, the Hang Seng China Enterprises Index ranks among the five cheapest benchmarks in the world, flanked by stocks in the Ukraine, Lebanon, Nigeria and Russia.

“Global funds are flowing back to Hong Kong," said Paul Pong, managing director at Pegasus Fund Managers Ltd. “Mainland funds are actively buying," and favoring H-shares trading at a discount to Chinese peers, while a rosier earnings outlook is also attracting investors, he said.

Chinese funds located in Hong Kong bought H shares on Wednesday after the Chinese government halted outbound mergers and acquisitions, the Hong Kong Economic Journal reported, citing people it didn’t identify at a Chinese investment bank. While the Hang Seng China AH Premium Index fell for a fifth day on Thursday to a one-month low, it still shows a premium of 20 percent on mainland dual-listed shares over their Hong Kong counterparts.

“Mainland institutional funds are buying shares actively in Hong Kong, in particular undervalued large-caps among H shares, such as property and financial stocks,” said Hayman Chiu, an analyst at Cinda International Holdings Ltd. in Hong Kong. “The prospect of a weaker yuan is pushing mainland funds to diversify their investments to non-renminbi assets.”

Trump Letter

President Trump sent a letter to his Chinese counterpart Xi Jinping saying he looks forward to building solid ties between the world’s two biggest economies. The letter is the first direct communication from Trump to Xi since he moved into the White House on Jan. 20. Trump still hasn’t set up a call with Xi since then despite speaking on the phone with more than a dozen world leaders.

A measure of mainland and Hong Kong banks rose to the highest level since August 2015, led by Bank of China Ltd. and China Merchants Bank Co. A gauge tracking Chinese automakers in Hong Kong rose Thursday to the highest level since April 2015, after analysts this week forecast better earnings prospects for car stocks and property developers.

Brokerage firms extended gains on speculation that a bond connect program with the mainland will be announced and China index futures restrictions will be eased. China will hold a regular annual meeting on securities and futures supervision on Friday and Saturday in Beijing, according to people familiar with the matter.

  • Mainland investors purchased 932 million yuan ($136 million) of Hong Kong stocks through the link between the city and Shanghai on Thursday. Hong Kong investors bought 1.8 billion yuan of China’s A shares through the link
  • Cheung Kong Property Holdings Ltd. has become the first Hong Kong developer to offer 100% stamp duty subsidies for homebuyers, the South China Morning Post reported
  • Television Broadcasts Ltd. rose 3.2% to HK$30.60 after saying on Wednesday that TLG Movie and Entertainment Group had offered to buy issued shares at HK$30.50 each.
  • Guangdong Topstar Technology Co., Hangzhou XZB Tech Co., Ltd. and Kunshan Kersen Science & Technology Co. surged 44% in their trading debut on the mainland
  • Tsingtao Brewery Co. climbed 5.6% in Hong Kong after Danish beermaker Carlsberg A/S was said to be considering a bid for a $1.2 billion stake in the company. 
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