China's economic growth to fuel rally in H shares

Through train may take stocks to their biggest monthly gains in 19 months while more fiscal spending and monetary easing are on the cards

PUBLISHED : Thursday, 31 July, 2014, 1:24am
UPDATED : Thursday, 31 July, 2014, 5:14am

Hong Kong-listed mainland companies may be heading for their biggest monthly gains in 19 months as punters chase mainland stocks in anticipation of stable economic growth.

The rally is also being fuelled by the incoming "through train" scheme from October that would allow investors in Hong Kong and on the mainland to cross-trade stocks in each other's markets. Fund managers expect the scheme to push up undervalued mainland blue chips.

In the second half … more fiscal spending and monetary loosening

The H-share index dipped 0.03 per cent to 11,119.32 points yesterday in Hong Kong as investors started taking profit after the recent rally. But the gauge is still up more than 7.5 per cent this month, its best performance since December 2012.

The Hang Seng Index edged up 0.37 per cent to close at 24,732.21 points on the back of the continuing strength of local property developers.

Cheung Kong (Holdings) added 2.2 per cent to finish at HK$150.40 while Sun Hung Kai Properties rose 3.2 per cent to HK$115.90.

"Market sentiment on China has improved dramatically in recent weeks after a series of positive data and news. In the second half, we look for more fiscal spending and monetary loosening or targeted interest rate cuts, and see a higher probability of a cut in banks' reserve requirement ratio," said Barclays China economist Jian Chang.

The Hong Kong stock market has seen net capital inflows for four consecutive weeks now, thanks to the optimism on the mainland economy, while net inflows into the mainland have been recorded for seven consecutive weeks, according to a note by CCB International yesterday.

Recent economic data has been largely positive, with a second monthly jump in the flash purchasing managers' index in July to an 18-month high of 52. A reading of more than 50 indicates a positive outlook.

The mainland's property market, widely seen as the biggest risk to growth this year, is also showing tentative signs of stabilising. More cities are relaxing home purchase restrictions and some large banks are offering discounts on mortgage rates to first-time homebuyers.

Mainland property shares fell yesterday as investors took profit, led by a sell-off in the country's biggest developer, China Vanke, as Credit Suisse downgraded the stock on concerns of overvaluation. The counter shed 1.7 per cent to HK$16.50 yesterday. It has gained 26 per cent in the past month.

But Credit Suisse upgraded the mainland's property sector as a whole to "neutral" in anticipation of possible credit loosening. It warned, however, of "the sector's structural problems, as well as uncertainties over how much help the potential credit loosening can provide to the housing market this time".

Oil players rallied after Beijing officially announced an anti-corruption investigation into former security tsar Zhou Yongkang. He served as China National Petroleum Corp's general manager from 1996 to 1998.

PetroChina, CNPC's Hong Kong-listed unit, was unchanged at HK$10.44, while the country's biggest offshore oil producer, CNOOC, added 1 per cent to finish at HK$13.96.

"We think the long-awaited official announcement of the investigation into Zhou Yongkang, the biggest 'tiger' implicated in the anti-corruption drive, will be taken positively by the market," Jian said.