Hong Kong stocks rally after China industrial profits data shows return to growth

Hong Kong stocks jumped on Monday in a recovery posted after the index registered its biggest weekly decline since January last Friday
Gains were triggered by data that showed profits for industrial companies in China rose 4 per cent from a month earlier in April

Hong Kong stock market

Zhang Shidongin Shanghai

Published: 10:53am, 27 May 2024

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Hong Kong stocks rallied after data showed China’s industrial profits resumed growth in April, marking a recovery following the biggest weekly loss since January last Friday.

The Hang Seng Index climbed 1.2 per cent to 18,827.35 at close, rebounding from the previous week’s near 5 per cent decline. The Hang Seng Tech Index rose 1.7 per cent, while the Shanghai Composite Index advanced 1.1 per cent after the securities regulator tightened rules on stake reductions by major shareholders.

Lenovo Group rallied 8.9 per cent to HK$12.04, after at least four brokerages – including HSBC, DBS, CICC and CCBI – raised their price targets for the personal-computer maker.

“We expect Lenovo’s AI server shipments to grow 108 per cent year on year in the financial year ended March 2025, supported by easing GPU shortage,” DBS analysts said in a note after the bank raised its price target for the stock to HK$13.20 from HK$10. “We expect the server business to turn profitable in financial year ended March 2025 and an acceleration in PC shipment recovery to catalyse the re-rating.”

Chip maker Semiconductor Manufacturing International Corp climbed 7.4 per cent to HK$16.48 after a US$48 billion semiconductor investment fund was set up backed by Chinese finance ministry and state-owned banks, according to a business registry record on Chinese corporate database service Qichacha. The fund will focus on equity investment in the chip sector in Beijing’s latest effort to achieve self-sufficiency as the US seeks to restrict its growth.

A staff member works at a workshop of China First Heavy Industries (CFHI) in Qiqihar, northeast China’s Heilongjiang Province, April 28, 2024. Data published on Monday showed that profits for industrial companies in China rose 4 per cent from a month earlier in April. Photo: Xinhua

Data published on Monday showed that profits for industrial companies in China rose 4 per cent from a month earlier in April. That reversed a 3.5 per cent decline in the previous month, the National Bureau of Statistics said on Monday. The agency is also due to release the May report for the purchasing managers’ index for the manufacturing industry on Friday, which economists expect to stay above the expansionary zone.

“The recent pullback in Hong Kong stocks is mainly due to the disappointing US inflation data and pretty hefty gains made since late April,” said Fang Yi, an analyst at Guotai Junan Securities in Shanghai. “But that [pullback] offers a good buying opportunity as the valuations of Hong Kong stocks are close to extreme levels and expectations are no longer revised downward.”

The positive industrial-profit print could provide relief to Hong Kong stocks, which suffered from a streak of four-day declines last week in the longest such streak in a month. Sentiment took a pounding from a raft of headwinds ranging from the hawkish comments by the Federal Reserve on the rate policy to the escalating tensions arising from the Taiwan Strait. Investors are also keeping close tabs on China’s home sales after a sweeping bailout package for the industry.

China Evergrande New Energy Vehicle Group surged 86.9 per cent to HK$0.71, as the stock resumed trading after being suspended over the past week. A group of liquidators reached an initial agreement with an unidentified buyer to take a 29 per cent stake in the carmaker, according to an exchange statement.

Long-only Asian funds and emerging-markets funds cautiously increased holdings of Chinese stocks in April, raising their positions by 1 and 0.8 percentage points respectively, to maintain their small underweight positions, according to HSBC Holdings. US funds have held off from selling Chinese stocks since February, although overall holdings are well below the levels in 2020, it said in a report on Monday.

Other major Asian markets all strengthened after a report showing cooling US inflation expectations renewed optimism about an earlier cut in the borrowing cost. Japan’s Nikkei 225 climbed 0.7 cent, while South Korea’s Kospi rose 1.3 per cent and Australia’s S&P/ASX 200 added 0.8 per cent.

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