Stock Talk

HK market posts biggest gain in over 7 months on stimulus hopes

PUBLISHED : Friday, 07 September, 2012, 4:53pm
UPDATED : Friday, 07 September, 2012, 6:23pm

The Hong Kong stock market posted its biggest gains in more than seven months, after the European Central Bank revealed a more ambitious than expected bond purchase plan and China’s announcements of substantial infrastructure sector investments lured buyers back into the market.

Today’s market is “a strong, short-covering, relief rally”, said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees about US$8 billion.

He said those stocks that had lost the most recently posted the biggest gains on Friday "such as materials and industrial sectors,” he said. He said many short-term buyers sought out these sectors in search of short-term gain.

The benchmark Hang Seng Index closed up 3.09 per cent, or 592.86 points, at 19,802.16 on Friday, marking its  biggest single-day gain so far since January 17 this year. The Hang Seng China Enterprises Index (HSCEI) gained even more, up 3.96 per cent, or 358.82 points, to end at 9,428.21, after onshore market gained sharply.

The National and Development Reform Commission (NDRC), China’s top economic planner, on Thursday approved another 30 projects including highway construction, port transformation and sewerage treatment. On Wednesday it also approved 25 urban railway projects worth more than  700 billion yuan.

Anhui Conch Cement (0914.HK), the country’s largest cement-maker, surged as much as 8.52 per cent to close at HK$21.40, on speculation that China’s sudden emphasis on infrastructure projects will boost demand for building materials. China National Building Material Company (3323.HK) jumped 8.84 per cent to HK$7.88.

“More than 20 per cent of China’s gross domestic product is driven by infrastructure construction. And if the projects are lauched smoothly, it will be a big boost to the economy,” said Alma Yang, a fund manager at Shenyin Wanguo Asset Management (Asia).

Friday’s market was also lifted by improved sentiment after the European Central Bank said policymakers had agreed to an unlimited-bond purchase plan in a bid to ease the borrowing cost of debt-laden countries.

Esprit Holdings (0330.HK), a clothier whose major revenue comes from Europe, rose 2.11 per cent to HK$12.58. HSBC (0005.HK), Europe’s biggest bank, gained 2.45 per cent to finish at HK$68.900

Shenying Wanguo’s Yang expects market to keep trending up for one to two weeks. She is bullish on infrastructure-related firms, such as railway-equipment maker China Railway (0390.HK) and China Communications Construction (1800.HK). 

China-related shares posted the strongest rebound on Friday’s market after the onshore market posted its  biggest gain in eight months on speculation that Beijing plans a slew of stimulus policies to save the world’s second biggest economy from a “hard landing”.

The Shanghai Composite Index gained 3.7 per cent, or 75.84 points, to close at 2127.76, the highest level in nearly eight months.

Up to 36 firms on the HSCEI, which tracks 40 Chinese enterprises, gained on Friday. Coal-maker Yanzhou Coal (1171.HK) gained most on the gauge, up 9.12 per cent to 11.26. Carmaker Dongfeng Motor (0489.HK) rose 6.52 per cent to HK$9.97, after official data showed record car sales in China in August.

However, investors said whether it was uncertain whether Friday's rebound will turn into a longer-term rally.

“It will need another three to four weeks to see if the Chinese government will roll out supporting measures, especially in terms of financing, to make sure all approved projects get started smoothly. If they do not, it will be another story,” Shenyin Wanguo’s Yang said. 

Barring’s Kiem Do said,“Things come and go. When people calm down and realise that the policy change is a two- to three-year story and could not change the company’s profile in the next 12 months, one has to sell again,”