Stocks jump as investors bet on hot money inflows

PUBLISHED : Saturday, 23 July, 2005, 12:00am
UPDATED : Saturday, 23 July, 2005, 12:00am

H shares in demand as yuan revaluation boosts earnings hopes for Chinese firms

Trading volumes surged yesterday, pushing the Hang Seng Index up 166.32 points, or 1.14 per cent, to 14,786.46, as punters bid on speculative inflows into the market as a result of the yuan revaluation.

Hong Kong-listed China stocks were in particular demand, as investors bought on expectations that earnings of the mainland players would be boosted by the yuan's 2.1 per cent appreciation.

Turnover of the 37-stock H-share index amounted to $8.66 billion, or 27.2 per cent of market turnover. Turnover reached $31.84 billion - the third-highest level in a single day this year, and just behind the $34.6 billion turnover on March 2, and $32.5 billion in transactions on January 7.

'The yuan's appreciation intensified investors' optimism over the stock market, as hot money will help to boost the market,' said Andrew To, a research director at Tai Fook Securities.

China Mobile and HSBC led the gainers. China's largest mobile operator rose 1.81 per cent to $30.95, while the global banking giant edged up 0.88 per cent to $126.70. They contributed 73.9 points of the blue-chip HSI's gain.

Helping China Mobile higher was research from Macquarie and JP Morgan, who picked the stock as one of the top beneficiaries of a yuan appreciation. Smaller rival China Unicom surged 3.08 per cent to $6.70.

Securities house Guotai Junan said in a report that much of China Unicom's revenue comes from the mainland and its long-term loans amounted to US$1.2 billion.

Revaluing the yuan by 2.1 per cent would increase China Unicom's earnings per share by 0.19 per cent.

Property stocks outperformed other sectors.

Tung Tai Securities associate director Kenny Tang Sing-hing said the yuan revaluation could lead to asset price inflation in Hong Kong and hot money would also help to release the rising pressure on local interest rates - both positives for the property sector.

Among the property constituents, New World Development was the best performer, adding 3.03 per cent to $10.20. Hang Lung Properties gained 2.85 per cent to $12.65.

Cheung Kong rose 2.74 per cent to $84.35, Sino Land jumped 2.15 per cent to $9.50, and Henderson Land surged 2.08 per cent to $39.30.

China Resources Enterprise, a mainland conglomerate, was the biggest index gainer yesterday, climbing 4.6 per cent to $12.50.

Li & Fung, which orders Asian goods for export to the United States and Europe, was the worst index performer. The stock fell 2.44 per cent to $16 as investors were concerned that the yuan's appreciation would erode its bottom line.

The H-share index finished at 5,139.1 points, adding 0.95 per cent or 48.42 points, mainly driven by Sinopec.

The oil refiner jumped 5.69 per cent to $3.25 after JP Morgan said in a report that 'appreciation of the [yuan] could mean the beginning of a recovery in China's domestic refining margins'.

The US investment bank estimated that for every 1 per cent increase in the value of the yuan, Sinopec's yuan earnings should rise by 2.6 per cent and its Hong Kong dollar earnings by 3.6 per cent. Sinopec Zhenhai Refinery soared 8.7 per cent to finish at $7.50.

However, China's largest oil producer PetroChina dropped 0.77 per cent to $6.45 after rising to a record $6.50 on Thursday. JP Morgan said the impact of the yuan's appreciation on PetroChina was neutral as the oil company used most of its crude oil production at its own refineries.

Commodity stocks faced downward pressure. The yuan revaluation may reduce China's exports, which would affect demand for raw materials, said Kwong Man-bun, a director at KGI Asia Securities.

Yanzhou Coal Mining slid 6.52 per cent to $6.45, and Aluminum Corp of China fell 3.65 per cent to $4.625.