Hong Kong stocks chalk up 5pc gain in August, with pace of US rate rise seen as near term focus

Hong Kong stocks extend their winning streak for two straight months while Shanghai posts its biggest monthly gain since March

PUBLISHED : Wednesday, 31 August, 2016, 9:14am
UPDATED : Wednesday, 31 August, 2016, 10:51pm

Hong Kong stocks gained 5 per cent in the month of August, extending their winning streak for two straight months and pushing them to one of the highest levels of this year, mainly driven by companies’ interim results and official go-ahead for the Shenzhen Hong Kong Stock Connect as soon as November.

Investors are now waiting on the release of China’s latest manufacturing PMI data on Thursday and US non-farm payroll data on Friday.

The Hang Seng Index closed at 22,976.88 on Wednesday, down 0.17 per cent from a day earlier, while the Hang Seng China Enterprises Index dipped 0.58 per cent to 9,541.8. Banking shares were sharply up, but offset by losses in insurance, semiconductor and consumer-related stocks.

Ivan Li, head of research at Sinopac Securities (Asia), said August’s gain was mainly driven by better than expected interim results of mainland companies, including those in the banking sector.

“The non-performing loans growth of mainland banks slowed in the second quarter, compared with the first quarter, which gave investors some confidence. Meanwhile, their dividend payout was quite good,” Li said. The share buybacks in heavyweight HSBC Holdings also pushed up the benchmarks this month.

Standing at one of its best levels of the year, the Hang Seng Index may face downward pressure in the short term if more hawkish signals on interest rate rise are seen from the US Federal Reserve, but it is likely to climb higher if mainland banking and insurance companies report better results in the second half, Li said.

BOC Hong Kong (Holdings) outperformed its blue-chip peers with shares closing 4.02 per cent higher at HK$27.15, its highest level in a year. The rally came after the lender announced a special dividend and a 2.2 times surge in interim profit due to the disposal of Nanyang Commercial Bank.

HSBC, the most heavily traded stock in Hong Kong, increased 2.31 per cent to HK$57.5, while Bank of Communications rose 1.35 per cent to HK$5.99.

It seems the market failed to find a direction when the city’s benchmark arrived at 23,000
Victor Au, Delta Asia Financial

However, China Life Insurance Company shares fell 1.59 per cent to HK$18.54 while Macau casino operator Sands China fell 1.61 per cent to HK$30.5 as Macau’s gross domestic product in the second quarter contracted 7.1 per cent year on year.

“It seems the market failed to find a direction when the city’s benchmark arrived at 23,000,” said Victor Au, chief operating officer at Delta Asia Financial. “Now the market focus is on US interest rate movements...as there is no big surprise expected from China’s PMI data.”

China will release its official August manufacturing PMI data on Thursday morning. Analysts expect the gauge to stand at July’s level of 49.9, which indicates continuing contraction, according to a poll by Reuters.

On Friday night, the US will announce August non-farm payrolls, with strong data increasing the chance of an interest rise as soon as September.

On the mainland, the Shanghai Composite Index added 0.35 per cent to 3,085.49 while the CSI 300 — which tracks the large caps listed in Shanghai and Shenzhen — was up 0.48 per cent to 3,327.79.

The Shenzhen Composite Index added 0.22 per cent to 2,032.87 while the Shenzhen Component Index added 0.27 per cent to 10,757.88. The Nasdaq style ChiNext was down 0.17 per cent to 2,191.76.

For the month of August, the Shanghai Composite Index gained 3.56 per cent, its biggest monthly gain since March, extending its winning streak for three months in a row.