Daily Report

Property stocks lift Hang Seng to 23-month high

Mainland markets closed for the Dragon Boat Festival. Hong Kong follows suit Tuesday, but closes Monday up 0.2 pc to 25,701.63

PUBLISHED : Monday, 29 May, 2017, 10:53am
UPDATED : Wednesday, 31 May, 2017, 11:24am

Chinese property firms lifted Hong Kong’s benchmark index on Monday to the highest closing level in nearly two years, after several investment banks upgraded China’s real estate shares on the back of better-than-expected sales figures.

The Hang Seng Index extended its winning streak to a seventh straight session, up 0.2 per cent, or 62.36 points, to 25,701.63, the best finish since July 3, 2015. The Hang Seng China Enterprises Index, known as the H-shares index, gained 0.4 per cent, or 39.67 points, to close at 10,619.34.

However, trading volumes shrank ahead of the Dragon Boat Festival, with the turnover down 7 per cent to HK$61 billion.

Chinese Property developers posted significant gains, with China Evergrande Group and Country Garden surging 22.8 per cent and 9.4 per cent respectively.

“We just got an upgrade by JP Morgan on Country Garden. That’s very encouraging because Morgan Stanley also upgraded Evergrande last week,” said Alex Wong, director of asset management at Ample Financial Group.

“That’s probably due to better-than-expectation sales and the potential of better turnover rates in the rest of this year.”

JP Morgan on Monday maintained “overweight” rating on the stock of Country Garden and raised the price target by more than 40 per cent to HK$11.

Country Garden touched a nine-year high of HK$9.59 during the day, before ending at HK$9.4.

Last week, Morgan Stanley gave an “overweight” rating to China Evergrande for the first time, with a price target of HK$12.

On Monday, China Evergrande hit a new all-time high of HK$15.78 during intra-day trading. It closed at HK$15.2.

Among other Chinese developers, Sunac China, Longfor Properties, and Guangzhou R&F Properties gained 10.5 per cent, 5.9 per cent, and 2.5 per cent separately.

We just got an upgrade by JP Morgan on Country Garden. That’s very encouraging because Morgan Stanley also upgraded Evergrande last week
Alex Wong, director of asset management, Ample Financial Group

A number of other investment banks, including Bank of America Merrill Lynch and CICC, have also issued similarly positive reports on China’s real estate sector.

Ken Kwong, Asia equity portfolio specialist at Eastspring Investments, said the entire sector is experiencing “a very nice recovery”, in line with strong gains both in the IT and the consumer-discretionary sectors earlier in the year.

But Kwong said the strong growth does not necessarily mean a guaranteed rosy future for the sector, as it seems unlikely for Beijing to relax the existing curbs on house purchases and mortgage loans anytime soon.

Supermarket and department operators also shined, with Lianhua Supermarket up 24 per cent to HK$3.92. The company announced Monday that a unit of Alibaba would buy an 18 per cent stake in Lianhua from its shareholder Shanghai Yiguo E-commerce.

Rival Parkson Retail also soared 9.4 per cent to HK$1.17. Springland International jumped 7.8 per cent to HK$1.93.

However, Chinese internet giant Tencent Holdings retreated 1.2 per cent to HK$274.8, pulling back after a recent rally. It was the biggest loser among all blue-chip stocks.

On the mainland, stock markets were closed for the Dragon Boat Festival and will resume trading on Wednesday.

Elsewhere in the region, Tokyo’s Nikkei Average ended flat at 19,682.57, and Sydney’s S&P/ASX 200 settled 0.8 per cent lower at 5,707.1.

Mainland China stock markets are closed due the annual Dragon Boat Festival. Elsewhere in Asia, Tokyo’s Nikkei 225 gained 0.19 per cent to 19,724.78. South Korea’s Kospi was up 0.63 per cent to 2,370.08 while Sydney’s All Ordinaries rose 0.02 per cent to 5,793.10.

Leading the early gainers in Hong Kong was China Resources Power, which bounced 5.07 per cent.

Louis Tse Ming-kwong, a director of VC Brokerage in Hong Kong, said he anticipates Monday to be quiet as Hong Kong markets, too will be closed on Tuesday for the festival, and that it’s near the end of the month.

“Today is the [Heng Seng Index] futures expiry date for May, but much of the action has been completed already,” he said. “We expect lukewarm trading.”

Ben Kwong Man-bun, head of research and executive director at KGI Securities, added: “[Investors] are likely to just hold onto their positions, pending more direction.

“The downward correction is not that big, but there is still a chance of some upward movement.”

Shanghai and Shenzhen trading resumes on Wednesday.