Construction, drug plays rise following quake

Sichuan-linked stocks chalk up strong gains but broader sentiment remains feeble

PUBLISHED : Tuesday, 23 April, 2013, 12:00am
UPDATED : Tuesday, 23 April, 2013, 4:45am

Shares in drug manufacturers, steelmakers and construction firms jumped in Hong Kong and Shanghai yesterday as investors bet medical and rebuilding demand will rise after an earthquake in Sichuan province that killed at least 186 people.

Sichuan Dikang Sci & Tech Pharmaceutical, a Chengdu-based drug maker, jumped by the daily limit of 10 per cent to finish at 5.97 yuan in Shanghai. Two local cement producers, Sichuan Golden Summit and Sichuan Shuangma Cement, both leapt 10 per cent yesterday.

Sichuan Road & Bridge, which constructs roads, bridges and tunnels, and Sichuan Guodong Construction, which makes glass and other construction materials, also shot up 10 per cent. Chongqing Iron & Steel jumped 10 per cent in Shanghai and 6 per cent in Hong Kong.

Despite sharp gains in Sichuan-exposed firms, overall sentiment was weak. The benchmark Shanghai Composite Index lost 0.11 per cent to 2,242.17 points and Hong Kong's Hang Seng Index gained just 0.14 per cent to 22,044.37 points.

Insurers fell sharply across the board. China Life lost 2.6 per cent to close at 17.22 yuan in Shanghai, its biggest single-day decline since March 4. It lost 1.9 per cent to end at HK$20.3 in Hong Kong.

The Shanghai benchmark lost 18 per cent in the month after the devastating 7.9-point quake in May 2008 in Sichuan's Wenchuan county. Hong Kong's main index lost 15 per cent in the month following the 2010 Yushu quake in western Qinghai province. But market observers said the impact would be much smaller this time.

"The earthquake did not have a huge impact on overall market sentiment. The deaths and losses are significantly smaller than the 2008 earthquake," said Stephen Sheung, head of investment strategy at SHK Private, the high-net-worth client division of Sun Hung Kai Financial.

"The rebuilding measures are expected to be region-specific, which means a change in the current fiscal and monetary policy stance should not be expected," he said. "It will boost the region's economy and jobs growth with little impact on the macro picture. The rebuilding-related economic impact should not be magnified as a stand-alone investment theme."

"The Chinese government will surely rebuild quake-ravaged regions, but the budget could be smaller this time," said a report by Bank of America Merrill Lynch. "We believe some local providers of cement and other rebuilding materials could gain to some degree, but the impact should not be exaggerated."

China approved 32 billion yuan (HK$39.7 billion) of reconstruction spending after the 2010 Yushu quake. In 2008, one trillion yuan of rebuilding was approved after the Wenchuan quake.