Hong Kong stocks rebound from biggest monthly slide in three years as traders change tack to skirt Beijing’s regulatory assault

Hong Kong stocks rebounded from their biggest monthly loss in almost three years, with the daily turnover matching the one-year average, as traders shifted their money into companies with attractive valuations and whose businesses are underpinned by government policy.

The Hang Seng Index rose 1.1 per cent to 26,235.80 at the close, reversing a loss of as much as 0.8 per cent earlier in the session. Shares worth HK$166.9 billion (US$21.5 billion) changed hands, compared with the daily average of HK$165 billion over the past 12 months.

Traders also looked past an increase in trading costs starting this month, as the stamp duty was lifted to 0.13 per cent from 0.1 per cent. New-energy vehicle and solar power stocks advanced, while China Resources Land led gains among property developers, the cheapest sector in the benchmark index. HSBC Holdings rose after the lender resumed dividend payouts as it recovered from the damage inflicted by the pandemic.

China’s Shanghai Composite Index gained 2 per cent for the biggest advance since March 11, with consumer stocks performing best.

After a tumultuous month that sent the Hang Seng gauge plunging by 9.9 per cent for the worst monthly performance since October 2018 and wiped out more than US$1 trillion in market capitalisation from onshore and offshore stocks, traders have adjusted their strategy to navigate the changing regulatory landscape. Investors should buy into stocks linked to the green economy, advanced manufacturing and tech localisation to avoid the policy risk, as the regulatory tone has remained defiant since the move to decimate the private education industry, according to Morgan Stanley and UBS Group.

In a Politburo meeting chaired by President Xi Jinping on Friday, senior politicians showed no signs of relenting in their campaign to rein in the industries they blame for exacerbating social inequality, widening the wealth gap and discouraging child births. Tightening the rules on the approval of overseas listings and increasing curbs on housing speculation were also on the agenda of policymakers, according to a Xinhua News Agency report on the meeting.

“In the near term, regulatory headlines could continue to cause market volatility,” said Meng Lei, a strategist at UBS. “We suggest short-term investors focus on sectors with strong policy support such as new energy (carbon neutrality), electric vehicles and semiconductors. Long term, investors could gradually add positions in ‘quality growth’ consumer names when valuations become more attractive.”

A gauge of implied volatility in the Hang Seng Index rose to a 14-month high last week and a quarter of the companies on the 58-member benchmark were technically oversold, according to Bloomberg data.

Electric car maker BYD surged 8 per cent to HK$258.20, a fourth straight day of gains, and Xinyi Solar Holdings advanced 4.4 per cent to HK$16.28.

Among the biggest winners in the Hang Seng Index, China Resources Land, Country Garden Holdings and Longfor Group Holdings rose at least 3 per cent as investors sought safety in undervalued stocks. The property stocks on the benchmark are trading at almost a 30 per cent discount to their book values, the lowest among all the industry groups, Bloomberg data shows.

China Evergrande Group, the world’s most indebted property developer, jumped 7.8 per cent to HK$5.67 after selling its internet unit HengTen for US$418 million to alleviate the cash crunch.

HSBC rose 0.9 per cent to HK$43.45. The UK-based lender will pay an interim dividend of 7 US cents per share as second-quarter profits surged by 17 times from a year earlier, according to the interim report. Alibaba Group Holding, which owns the South China Morning Post, added 1.5 per cent to HK$191.90 ahead of its quarterly earnings release on Tuesday. Profits for the quarter probably fell 4.4 per cent from a year earlier, according to the estimate of analysts surveyed by Bloomberg.

On the mainland, Kweichow Moutai, the world’s most valuable liquor maker, rose 4.5 per cent to 1,755 yuan, erasing an intraday loss of as much as 3.5 per cent sparked by its interim results showing growth in first-half net income had slowed to a five-year low. The mutual fund managed by China’s biggest money manager, one of Kweichow Moutai’s 10 biggest shareholders, curtailed its holdings of the company significantly in the second quarter, according to the interim report.