Hong Kong stocks hover near 21-month high as Tencent sets new record

Tencent scores another all-time peak, with market cap breaching US$300 billion

PUBLISHED : Tuesday, 02 May, 2017, 9:24am
UPDATED : Wednesday, 03 May, 2017, 12:43pm

Hong Kong stocks briefly hit their best level in 21 months on Tuesday, with Chinese online major Tencent scoring another all-time high, before paring back its gains and finishing only slightly higher, as banking shares lost traction on disappointing earnings.

The Hang Seng Index opened higher at 24,773.8, the best level since July 2015, before wiping out nearly all its gains in early afternoon trade. By the close, it ended up 0.3 per cent, or 81 points, at 24,696.13.

Index heavyweight Tencent notched a new record close, up 2.1 per cent to HK$248.4, after Deutsche Bank raised its target price for the stock and predicted a 46 per cent on-year increase in its first-quarter revenues. Tencent’s market cap increased to HK$2.35 trillion, or US$302 billion.

Earlier this month, Tencent surpassed Wells Fargo to become the world’s tenth biggest company by market value. The internet giant is due to unveil first-quarter results on May 7.

The S&P Global Ratings also recently raised its corporate rating on Tencent to “A+” from “A”.

“We raised the rating because we expect Tencent to maintain its solid operating and financial performance, and strengthen its market position in social communications and mobile payments,” said Andy Liu, credit analyst for S&P Global Ratings.

We raised the rating because we expect Tencent to maintain its solid operating and financial performance, and strengthen its market position in social communications and mobile payments

Tencent has repeatedly set new records in the past week, as several investment banks, including Bank of America Merrill Lynch and Morgan Stanley, upped their share price targets and expected robust earnings from its game and advertising businesses.

Another market shaker was Belle International, China’s largest shoe retailer. It jumped 15.2 per cent to close at HK$6.07, after a consortium of Chinese private equity firms offered to take the company private on Friday for US$6.8 billion. The offer price was set at HK$6.30 per share.

“The offeror stated it will not increase the consideration price, we think shareholders should capture this opportunity to sell their shares…The consideration price translates to a price/2017 earnings ratio of 19.1 times, versus 14.9 times implied by our fair value estimate,” said Morningstar analyst Chelsey Tam.

She said Belle will need to go through “a multi-year overhaul,” which could lead to large restructuring costs and earnings volatility that public shareholders may not have the patience to sit through.

Nonetheless, the Hang Seng China Enterprise Index, known as the H-shares index, dropped 0.5 per cent, or 46.27 points, to end at 10,173.62.

Daily turnover for Hong Kong markets slightly increased to HK$70 billion, up 7 per cent from Friday.

Hong Kong markets will be shut on Wednesday for the Buddha’s Birthday holiday. They were closed on Monday for the Labour Day holiday.

“Volumes are still light as we are sandwiched between two holidays,” said Brett McGonegal, chief executive of Capital Link International.

Among decliners, major Chinese banks were mostly weak, after they posted sluggish earnings growth in the first quarter.

Bank of Communications declined 1 per cent to HK$5.93, after recording a 1.4 per cent on-year growth in first-quarter net profit.

Bank of China dropped 0.5 per cent to HK$3.75, after saying its net income increased 0.06 per cent in the first three months this year. Agricultural Bank Of China lost 0.8 per cent to HK$3.56, and Bank of China shed 0.5 per cent to HK$3.75.

On the mainland, the Shanghai Composite closed lower on the first trading day of May, down 0.4 per cent, or 10.95 points, to 3,143.71.

In April, the index lost 2.1 per cent, the worst monthly decline this year.

Investor sentiment was weighed by weak manufacturing data, which showed the weakest pace of growth in China’s factory sector in seven months.

The large-cap CSI300 also fell 0.4 per cent to 3,426.58. The Shenzhen Composite Index and the startup board ChiNext index both finished flat, at 1,906.88 and 1,850.85 respectively.

Earlier on Tuesday, the April Caixin Manufacturing Purchasing Managing Index, a privately-conducted gauge of China’s manufacturing sector, came in at a worse-than-expected 50.3, down from 51.7 in March. It was also the lowest level in seven months.

Over the weekend, China’s official April PMI came in at a six-month low of 51.2.

Analysts said the data suggested the country’s factory and services have pulled back from multi-year records, dimming the outlook for China’s economic growth.

“The latest PMI readings aren’t the first sign that China’s economy has started to soften as the tailwinds from policy easing fade,” said Julian Evans-Pritchard, China economist for Capital Economics.

Financial shares declined most. China Pacific Insurance ended down 1.2 per cent to 27.41 yuan, after it said net profit dropped 9 per cent in the first quarter. ICBC also lost 1.2 per cent to 4.82 yuan.

However, shares of Zhejiang Dibay Electric Co., which makes refrigeration compressor motors, jumped by their 44 per cent allowable daily limit in their Shanghai stock exchange debut, rising to 14.30 yuan from an IPO price of 9.93 yuan.

With additional reporting by Celine Ge and Karen Yeung