Hong Kong stocks rally to 23-month high, led higher by Chinese banks

Hang Seng Index edges 0.6 per cent higher, reflecting its best closing level since July 2015

PUBLISHED : Thursday, 01 June, 2017, 9:12am
UPDATED : Friday, 02 June, 2017, 9:05am

Hong Kong stocks rallied to their highest level in 23 months on Thursday, led higher by Chinese banks which rose on the back of a bullish outlook from Goldman Sachs.

The benchmark was up 0.6 per cent, or 148.57 points, to finish at 25,809.22, reflecting its best closing level since July 2015.

“Money is switching to sectors which have lagged behind in the previous rally, such as Chinese financial players and car makers,” said Alex Kwok, an analyst for Ping An Securities.

State-owned Chinese banks mostly advanced on Thursday, with ICBC rising 1.7 per cent to HK$5.3, China Construction Bank gaining 1.4 per cent to HK$6.53, and Bank of China up 0.8 per cent to HK$3.93.

Gains in the three lenders came after Goldman Sachs issued a report saying it expected “long-term growth” for the Chinese banking sector. The broker issued a“buy” rating for ICBC, with a price target of HK$6.6.

The Wall Street investment bank also gave a “neutral” rating for both China Construction Bank and Bank of China, with target prices of HK$7.9 and HK$4.5 respectively.

Geely Auto climbed 2.8 per cent to a fresh record close of HK$13.26, after China International Capital Corp (CICC) rated the stock a “buy”, with a target price of HK$20. CICC said it expected the company’s sales volumes to exceed 1 million cars in 2017.

Chinese online major Tencent advanced 1.3 per cent to HK$271.2, recovering after a 2.6 per cent retreat on Wednesday.

Hong Kong’s daily turnover amounted to HK$85 billion on Thursday, down more than 20 per cent from Wednesday’s level.

“Hong Kong stocks have defied the motto of ‘Sell in May’ and posted a nice recovery in May. However, as we enter June, investors should be careful about the uncertainties from both mainland China and the US market,” said Hannah Li, an analyst from UOB Kay Hian.

The Chinese government stepped up its campaign to reduce financial leverage in mainland markets in May, prompting some advisors to warn of potential fallout to asset prices

“The liquidity squeeze will continue into June,” Li said. “Besides, June is also a traditional period when commercial banks meet with a cash shortage.”

“A continuous spike in borrowing costs could put downward pressure on China and Hong Kong stock markets,” she added.

On the external front, investors are watching the upcoming June meeting of the US Federal Reserve.

The US central bank is widely expected to tighten interest rates at the conclusion of its two-day meeting on June 14.

Among other market movers, shares in Cogobuy,tumbled 27 per cent to close at HK$4.37.

Trading in the firm was suspended last week following a 58-page report by short-seller Blazing Research, which predicted Cogobuy’s shares would plunge to as low as 53 HK cents, claiming there was a “significant discrepancy” between the company’s reported financial results and its filings to China’s State Administration for Industry & Commerce.

On the mainland, the Shanghai Composite fell 0.5 per cent to close at 3,102.62. The Shenzhen Composite Index and the Nasdaq-style ChiNext declined 1.9 per cent and 2 per cent each, ending at 1,773.61 and 1,728.49. The CSI 300 – which tracks the large companies listed in Shanghai and Shenzhen – finished slightly higher, up 0.1 per cent to 3,497.74.

On Thursday, the closely-watched Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) fell to 49.6 in May, below market expectations.

Li said the private-sector PMI coupled with the official PMI released earlier in the week suggested growth momentum in China’s manufacturing sector may have eased, casting a shadow over the country’s economic outlook.