Hong Kong stocks end at close to one-month high as offshore yuan rallies

The Hang Seng Index gains 1.46 per cent to 22,456.69, reflecting the biggest one-day gain since November 10

PUBLISHED : Thursday, 05 January, 2017, 9:14am
UPDATED : Friday, 06 January, 2017, 11:52am

Hong Kong stocks rose the most in two months on Thursday, helped by a sharp appreciation of offshore yuan and a private gauge of China’s services sector activity that rose to a 17-month high.

Mainland stocks closed mixed, with minor gains and losses for major benchmarks.

The Hang Seng Index ended at 22,456.69, its highest level since December 9, surging 1.46 per cent or 322.22 points, its biggest one-day gain since November 10.

Banking, insurance and airlines were the major winning stocks after the yuan’s jump.

“Obviously the market was boosted by the jump of offshore yuan,” Castor Pang Wai-san, head of research at Core Pacific Yamaichi said. “But I don’t think it’s sustainable because the turnover was still low and I don’t see rising momentum for China-related shares.”

The offshore yuan in Hong Kong rocketed more than 700 basis points stronger to 6.7868 against the US dollar, the best level seen since November. The rally came after the currency strengthened 900 basis points overnight.

“Expectations of a weakening yuan have eased, which could provide a boost to Hong Kong and mainland Chinese stocks,” said Linus Yip, an analyst for First Shanghai Securities.

Many short sellers had believed that the offshore yuan would weaken past 7 per US dollar this year, but the sudden appreciation of the currency, which followed a series of capital control measures by Chinese government, helped to change the short-term sentiment.

“But the trend of the yuan is unlikely to be fully reversed by a one-day surge. And we always see more sellers of China-related stocks come out once the prices go up,” Pang said.

Trading turnover on the Hong Kong Stock Exchange was up 23 per cent to HK$64.6 billion, exceeding HK$60 billion for the first time in 11 days, but was still lower than the daily average of around HK$70 billion in early December.

The gains came after the Markit/Caixin services purchasing managers’ index (PMI) rose to 53.4 in December on a seasonally adjusted basis, reflecting its best reading since July 2015.

PetroChina surged 4.19 per cent to HK$5.97, becoming the best performer among the 50 blue chips after overseas oil futures rebounded, while China Shenhua Energy Company gained 4.1 per cent to HK$15.74.

The stronger yuan boosted shares of Chinese airlines, as the parent companies have high ratios of US dollar-denominated debt.

China Eastern Airlines jumped 3.92 per cent to HK$3.71, China Southern Airlines climbed 3.4 per cent to HK$4.26, and Air China rose 1.39 per cent to HK$5.11.

Mainland share markets, however, closed little changed as gains in oil and defence stocks were offset by losses in liquor, brokerage and motorcycle manufacturers’ stocks.

The Shanghai Composite Index ended 0.21 per cent or 6.62 points higher at 3,165.41, extending its rising streak for a fourth day.

However, the CSI 300 Index was down 0.02 per cent to 3,367.79. Shenzhen’s Component Index fell 0.13 per cent to 10,371.47 while ChiNext lost 0.38 per cent to 1,983.97.

Total turnover in Shenzhen and Shanghai shrank from 450.3 billion yuan on Wednesday to 450 billion yuan on Thursday.