Hang Seng Index hits two-year high after US Fed sets more gradual tone for rate increases

PUBLISHED : Thursday, 13 July, 2017, 9:19am
UPDATED : Thursday, 13 July, 2017, 10:15pm

Hong Kong shares extended their gains on Thursday, led by Chinese financials after the US Federal Reserve Chair Janet Yellen signalled a gradual increase in interest rates, spurring an overnight rally in US stocks and Treasuries. Mainland China equities also gained after robust trade data for June.

The Hang Seng Index rose 302.53 points or by 1.16 per cent, to a two-year high of 26,346.17 while the Hang Seng China Enterprises Index advanced 160.07 points, or 1.5 per cent, to 10,677.44. Market turnover reached HK$96.205 billion.

China’s central bank conducted short-term liquidity injections this week via reverse repurchase agreements as it resumed its open market operations after suspending them for more than a week, which eased earlier fears that the PBOC would step up mid-year loan checks and tighten monetary policy.

Chinese banks and insurers led the gains, with Ping An adding 1.35 per cent to HK$56.2, while China Life advanced 1.6 per cent to HK$25.1.

Bank of China gained 1.3 per cent to HK$3.8, Industrial & Commercial Bank of China increased 1.34 per cent to HK$5.26 and Agricultural Bank of China added 1.11 per cent to HK$3.63.

“Strong gains seen in Chinese financials are pulling up the rest of Hong Kong’s stock market,” said Kingston Lin King-ham, director of securities brokerage AMTD. “The next target in the Hang Seng Index may be 26,500 for the quarter.”

Strong gains seen in Chinese financials are pulling up the rest of Hong Kong’s stock market
Kingston Lin King-ham, director at AMTD

Ken Wong, Asia equity portfolio specialist at Eastspring Investments, said: “The market in the past couple of weeks has gone sideways. This week has been good. Chinese banks are doing very well.”

He added that Hong Kong’s market has picked up momentum from US markets. The Dow rose to a record high close on Wednesday following Yellen’s congressional testimony, where she signalled a gradual rise in interest rates.

Wong said there is no clear indication whether the rally will be sustained long term, adding that he would advise investors to focus more on valuations rather than chasing the trend.

“Companies are going to start reporting results in the coming weeks,” he said.

Internet giant Tencent increased by as much as 1.8 per cent to HK$286.40 at one stage, approaching last month’s record HK$288.40. It closed the day at HK$284.4, up 1.13 per cent from Wednesday.

China’s trade data released earlier Thursday showed that exports rose 11.3 per cent in June on year and imports expanded 17.2 per cent, resulting in a higher-than-expected trade surplus of US$42.77 billion.

The persistent trade surplus could help relieve pressure from capital outflows, ANZ Bank said in a note following the data release.

Louis Tse Ming-kwong, a director of VC Brokerage in Hong Kong, said the local benchmark has been picking up speed in the past few weeks but is starting to meet some resistance.

He also added that China’s growth could slow down in the second half of the year. Given the current high levels, Tse advises caution as there is a large amount of debt plaguing the banking industry in China.

The Shanghai Composite Index rose 0.6 per cent to 3,218.16 while the CSI 300 — which tracks the largest stocks listed in Shanghai and Shenzhen — added 0.76 per cent to 3,686.92.

Meanwhile, the Shenzhen Composite Index shed 0.04 per cent 1,888.698 and the Nasdaq-style ChiNext shed 0.44 per cent to 1,778.86.

All three major US stock indices advanced on Wednesday, with the Dow Jones Industrial Average up 0.6 per cent to a record close of 21,532.14. The S&P 500 gained 0.7 per cent to 2,443.25 and the Nasdaq Composite climbed 1.1 per cent to 6,261.17.