Index back over 18,000 on Huijin buying spree
The Hang Seng Index rallied above the 18,000-point level yesterday after a state-owned investment company bought shares in the mainland's four biggest banks.
The blue-chip index rose for the fourth day, closing 2.43 per cent higher at 18,141.59 points. It has recovered 1,891.32 points or 11.63 per cent since last Tuesday.
The four major mainland banks all outperformed the market after state-run Central Huijin Investment started buying their A shares in Shanghai.
China Construction Bank shares rose 5.8 per cent to close at HK$5.11, Industrial and Commercial Bank of China gained 6.68 per cent to HK$4.31 and Bank of China rallied 7.72 per cent to HK$2.65. They were the most actively traded stocks in Hong Kong in terms of turnover.
Agricultural Bank of China saw the biggest gain among the four lenders, jumping 12.83 per cent to HK2.99.
Huijin bought 14.6 million ICBC shares, 7.38 million Construction Bank shares, 39.1 million ABC shares and 3.5 million BOC shares.
The company, which holds the government's stakes in the banks, says on its website it will continue with 'related market operations'. It did not elaborate.
This was interpreted by the market as a move to rectify the recent discount in the banking stocks. As of yesterday, the A-share price-book ratios of the four banks were trading below 1.5 times, with BOC at only 1.1 times.
Louis Tse Ming-kwong, a director of VC CEF Brokerage, said the central government did not want mainland banks to be valued too cheaply lest they need to place new shares early next year to raise capital to improve liquidity.
Banks are facing credit-tightening policies and the looming threat of non-performing loans.
The banks' A shares did not perform as well as their H shares in Hong Kong, with BOC rising 2.09 per cent, Construction Bank gaining 2.49 per cent, ABC adding 2.02 per cent and ICBC climbing 1.5 per cent. The mainland stock markets were not helped by Huijin's investment. The Shenzhen Composite Index closed 0.55 per cent lower, while the Shanghai Composite Index gained just 0.16 per cent. Both hit 52-week lows during yesterday's trading.
Stanley Li, an analyst with Mirae Asset Securities, said the mainland markets were overshadowed by the liquidity crisis facing small and medium-sized enterprises and the sharp drop in exports. Li also said the Hong Kong market was more reactive to global fund flows, which had ebbed and flowed following the latest developments in the European debt crisis.
Hong Kong and Asian markets as a whole were buoyed by the pledge from European governments to deliver a plan to recapitalise European banks and solve Greece's solvency problem by the first week of next month.
Ben Kwong Man-bun, chief operating officer of securities firm KGI Asia, said liquidity was flowing back into commodities and stocks in Asia as concerns over the US economy and the European debt crisis started to ease.
Turnover on the Hong Kong exchange yesterday was HK$83.7 billion, compared with HK$60.5 billion on Monday and August's daily average of HK$78.78 billion.
Among the markets in the region, Taipei rose 2.59 per cent, Bangkok and Jakarta gained 2.34 per cent and Tokyo added 1.95 per cent.