The Hang Seng Index ended a five-day losing streak, led by mainland banks and brokers, as investors built positions before the earnings season and Beijing indicated it would bring in more foreign investors into the mainland stock market.
The index rose 2.33 per cent, or 501.05 points, to finish at 22,013.57, in the biggest single-day rally in nearly four months. But turnover stood at a thin HK$66 billion, indicating buying appetite continues to be weak. The benchmark had shed nearly 600 points during its five-day losing streak as big fund houses pulled out of Hong Kong amid disappointing China data and shifted to Japan, where asset prices are rising on the back of the government's massive monetary easing initiative.
The spike in Hong Kong stocks was helped by a rebound in the mainland market as Beijing said it would start awarding new allocations under the renminbi qualified foreign institutional investors (RQFII) scheme, without specifying the extent of the new quota enabling foreign investors to invest in mainland stocks.
The Shanghai Composite Index added 2.14 per cent to close at 2,244.64 points on the day.
Market sentiment was further buoyed after the China Securities Journal reported that mainland regulators held discussions with MSCI indices managers over the possibility of adding A shares to MSCI emerging markets indices.
"We are likely to see the strongest rebound of the year in the second quarter, with around 10 to 15 per cent upside for MSCI China," said Wendy Liu, head of China equity research at Nomura.
"When the sentiment is pessimistic, it is the best time for entry. The valuation is in discount as the market has priced in tightening risks. Yet sooner or later, most investors would realise tightening risks are not as big as they thought, given the slower growth in China," Liu said.
Mainland banks, due to report first-quarter earnings next week, jumped across the board. China Construction Bank added 3.7 per cent to finish at HK$6.24.
The nation's banking regulator yesterday ordered lenders to boost credit support for energy-saving and environmental industries.
Brokerages surged on speculation the new quota would boost their business. Citic Securities was up 7 per cent to HK$17.08 while Haitong Securities rose 5 per cent to close at HK$10.78.