Hong Kong stocks end higher on robust China factory data

Indices gain after manufacturing gauge jumps to highest since July 2014

PUBLISHED : Tuesday, 01 November, 2016, 9:25am
UPDATED : Tuesday, 01 November, 2016, 10:45pm

Hong Kong stocks were driven higher on Tuesday by stronger-than-expected readings on China’s factory output for October, as investors shook off a slide in oil prices and losses on Wall Street overnight.

The Hang Seng Index advanced 0.93 per cent or 213 points to close at 23,147.07 on Tuesday. The Hang Seng China Enterprises Index climbed 1.54 per cent or 146.8 points to end at 9,706.2.

Blue chips were broadly on the rise. Tencent was up 0.68 per cent to close at HK$207.2 while China Mobile rose 0.23 per cent to HK$89.05.

Local real estate developers fared well, with Wharf Holdings up 2.83 per cent to HK$59.95 and Henderson Land gaining 1.52 per cent to close at HK$46.65. New World Development gained 1.24 per cent to HK$9.79.

Oil stocks were also among the best performers of the day after New York oil futures slumped nearly 4 per cent to more than a month low and traded in a narrow range in the Asian session. PetroChina advanced 1.12 per cent to HK$5.4 and Sinopec gained 2.66 per cent to HK$5.8.

On the mainland, the Shanghai Composite Index rose 0.71 per cent or 21.95 points to close at 3122.44. The large-cap CSI300 closed 0.68 per cent higher at 3359.05 and the Shenzhen Component Index rose 0.86 per cent to 10,796.14 at the close. The Shenzhen Composite Index moved up 1.11 per cent to 2,073.11, and the ChiNext Index edged higher by 0.77 per cent to 2,176.45.

China’s official manufacturing purchasing managers index (PMI), a gauge of the country’s factory activity in large state-owned enterprises, increased from 50.4 in September to 51.2 in October, stronger than market forecasts and marking the highest level since July 2014. The official non-manufacturing PMI was up to 54 in October from 53.7 in the previous month.

Separately, the Caixin/Markit manufacturing PMI, a private measure of China’s industrial production focusing on smaller and medium-sized companies, also beat market expectations and jumped to 51.2 in October, compared with September’s 50.1.

Chinese insurers led the gains in Hong Kong, after China’s insurance industry regulator announced Tuesday that total premiums for the industry jumped 32 per cent year-on-year in the first three quarters.

China Life Insurance climbed 1.76 per cent to HK$19.6 and Ping An Insurance advanced 1.59 per cent to HK$41.6. The A-shares of the two insurer rose 0.23 per cent and 1.3 per cent to 21.88 yuan and 35.06 yuan respectively.

“Today’s data are unambiguously upbeat and consistent with broader evidence that the economy is currently in the midst of a cyclical recovery,” said Julian Evans-Pritchard, China economist for Capital Economics, in a research note on Tuesday.

“Stronger domestic demand appears to be responsible, with the new export orders sub-index of both PMIs actually falling,” he said. “The employment components continued to recover and the price indices hit multi-year highs, pointing to further increases in producer prices.

Today’s data are unambiguously upbeat and consistent with broader evidence that the economy is currently in the midst of a cyclical recovery
Julian Evans-Pritchard, China economist for Capital Economics

“Given the continued feed through from earlier policy easing, we expect activity to hold up well until early next year,” Evans-Pritchard said.

Despite the improving economic fundamentals, “we don’t think the rebound of the HSI is sustainable as there is no big room upward”, said Vincent Ji, strategist at China Merchants Securities (Hong Kong). “Given the risk of asset bubbles in the mainland which could possibly see some tightening of liquidity, we don’t see significant increase in capital inflows into the Hong Kong market,” he said.

“We expect HSI to fall by 10-15 per cent from the current level until the first quarter of 2017,” added Ji.

Asian markets traded mostly lower on Tuesday, with Japan’s Nikkei-225 Index up 0.1 per cent to 17,442.4 points and the Korea Composite Index down 0.04 per cent to 2,007.39 points.

Overnight on Wall Street, the S&P 500 dipped 0.26 points or 0.01 per cent to close at 2,126.15. The Dow Jones Industrial Average ended down 0.1 per cent at 18,142.42. The Nasdaq Composite finished lower by 0.97 points or 0.02 per cent at 5,189.13.