China stock market

Hong Kong stocks rebound on prospects of China’s manufacturing and corporate earnings

China’s manufacturing Purchasing Managers’ Index in January has indicated expansion for 18 months in a row, while China Life expects a 75 per cent jump in earnings

PUBLISHED : Wednesday, 31 January, 2018, 9:38am
UPDATED : Wednesday, 31 January, 2018, 11:00pm

Hong Kong stocks rebounded on Wednesday after falling two straight days for the first time in six weeks, boosted by a robust outlook of corporate earnings and a gauge showing the strength of China’s manufacturing industry.

The mainland’s manufacturing Purchasing Managers’ Index stood at 51.3 this month, a lower-than-expected level but still above the watershed line 50, indicating expansion for 18 months in a row, the statistics bureau said on Wednesday.

The benchmark Hang Seng Index gained 0.86 per cent, or 279.98 points, to 32,887.27, erasing an intraday loss of 0.9 per cent. The Hang Seng China Enterprise Index, or the H-share gauge, also rebounded by 1.29 per cent. Mainland equities were mixed.

Chinese insurers led the rally in Hong Kong, with China Taiping Insurance Holdings advancing 4.81 per cent, New China Life Insurance adding 3.35 per cent, and China Pacific Insurance Group increasing 1.8 per cent.

China Life Insurance rose 3.12 per cent to HK$26.45 after the insurer said on late Tuesday that net income might have risen by as much as 75 per cent from a year earlier in 2017.

Ping An Insurance Group advanced 2.72 per cent to HK$92.65 on the news that it will list its health care technology unit on the main board.

Oil producers fell after crude dropped the most this year in New York. CNOOC, China’s largest offshore crude oil and natural gas producer, declined 1.14 per cent to HK$12.18, and PetroChina was down by 0.8 per cent to HK$6.20.

Morgan Stanley said in a note issued on Tuesday night that the Hang Seng Index could touch the target of 37,600 in its bull-market scenario, implying a 15 per cent rise from its close yesterday, though the gauge runs the risk of falling back to 31,500 in the coming few weeks because of being overbought and in the advent of the Lunar New Year.

“Value could be reestablished if the HSI were to correct to below our base case (31,500) while fundamentals stay intact,” said analysts led by Jonathan Garner at the US bank in the report.

Despite the rebound and bullish views, fund managers have raised concerns about a higher level of volatility.

“The turnover looks good. But if a large part of that turnover is from transactions in derivatives, that will provide a lot of volatility in the near term,” said Louis Tse, managing director at VC Asset Management.

The HSI Volatility Index is at its highest level in six months, data compiled by the Stock Exchange of Hong Kong showed. The Hang Seng gauge staged a V-shaped rebound on Wednesday morning, as traders digested the overnight sell-off in US stocks and took cues from China’s PMI.

“The market has been down and up for around 500 points, a roller coaster experience for retail investors,” Tse said.

In mainland trading, the Shanghai Composite Index dropped 0.21 per cent to 3,480.83, erasing gains before the lunch break. The Shenzhen Composite Index declined 1.66 per cent to 1,877.82, dragged down by mid and small caps.

Leshi Internet Information and Technology tumbled 10 per cent to 8.15 yuan, falling by the daily maximum cap for a sixth consecutive day since it resumed trading last week. Institutional investors such as the China Post Fund projected that the stock will drop for 13 consecutive days.

The company said in an exchange filing it expected to post a net loss of as much as 11.6 billion yuan (US$1.8 billion) as it made provisions for debt owed by affiliates and asset depreciation, and operating costs increased.

The CSI 300 Index of big-cap shares bucked the trend and advanced 0.47 per cent.

Liquor giant Kweichow Moutai rallied 3.03 per cent to 764.54 yuan after the distiller said net income might have risen by 58 per cent in 2017 from a year earlier, thanks to increased sales.