Photographer: China Photos/Getty Images

Hong Kong Stocks Rise to 21-Month High as Shanghai Halts Decline

  • Some shares appeared very cheap after recent drops, CEB says
  • Coal-fired generator companies rise on proposed merger plan

Hong Kong shares rose to the highest close since July 2015 as commodities gained, while shares in China snapped a five-day losing streak after technical indicators signaled that the slide may have been overdone.

The Hang Seng Index climbed 1.3 percent to 24,889.03 at the close. China Resources Power Holdings Co. led the advance, climbing the most in 14 months after China was said to be considering plans to create three energy giants through mergers of eight companies. China Petroleum & Chemical Corp. rose 2.5 percent after crude oil gained. The Shanghai Composite Index pared early losses to close 0.1 percent higher.

Hong Kong’s equity markets have been faring better than the mainland’s this year as an intensifying deleveraging campaign onshore has made the city’s shares more attractive. The Hang Seng Index has climbed 13 percent this year and is among the world’s top performers, whereas the Shanghai benchmark gauge has fallen 0.7 percent.

"After A-share markets closed, money started flowing into Hong Kong to speculate," said Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong.

Shanghai stocks rose Tuesday after losing 2.4 percent in the five days through Monday. The declines drove the gauge’s relative strength index to below 30, a level that suggests to some traders that an asset is oversold. China is stepping up scrutiny of stock traders as the government prepares to host the Belt and Road Forum in Beijing, people with direct knowledge of the matter said Tuesday, while the nation’s banking regulator said Monday that lenders should carry out collateral pressure tests at least once a year.

"Some stocks appeared to be very cheap at current levels, and this triggered some bargain hunting," said Banny Lam, head of research at CEB International Investment Corp. in Hong Kong.

State-owned enterprises that dominate old growth industries, such as banks and commodity producers, have been among the hardest-hit by the deleveraging drive, while new-economy shares remain in favor among overseas investors. That’s led to a wide gap between the nation’s two main offshore gauges: the Hang Seng China Enterprises Index and the MSCI China Index.

The ChiNext measure of mostly small-cap stocks added 0.8 percent, while the Shenzhen Composite Index halted a five-day drop to climb 0.7 percent. The Hang Seng China Enterprises Index gained 1.5 percent.

  • China Resources Power rose 5.5% in Hong Kong, while Datang International Power Generation Co. rose by the daily 10% limit in Shanghai. China is considering plans to create three power giants through mergers of eight generators with combined assets of almost 5.9 trillion yuan ($855 billion), according to people with knowledge of the plan.
  • Nine Dragons Paper Holdings Ltd. jumped 7.7%, the most since Jan. 24, after renewing supply and purchase agreements.
  • Lee & Man Paper Manufacturing Ltd. climbed 5.7% to HK$6.50. The company bought back 130,000 shares at HK$6.06 per share on Monday, according to a statement to the Hong Kong stock exchange.
  • Kingsoft Corp. Ltd. rose 3.8% in Hong Kong, the most since April 24, after the software developer’s unit, Beijing Office Software, submitted an application for a Shenzhen listing. The unit plans to list on the ChiNext board of the Shenzhen stock exchange, according to a Kingsoft statement on Monday night.
  • Wangfujing Group Co. slid 6% in Shanghai as trading resumed for the first time since the stock was halted on Sept. 27. The company terminated the acquisition of a 100% stake in Xi’an Kaiyuan, according to a company statement Monday.
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