Huijin's vow powers rush into Hong Kong stocks

The Hong Kong share market rose yesterday to its highest level since May 3 as investors flocked into mainland-related stocks on speculation that Beijing may have more market-boosting measures in the pipeline.

The Hang Seng Index rose 0.65 per cent to close with a gain of 137.38 points at 21,136.43, breaching the psychologically important 21,000 level for only the second time in more than five months.

Mainland financial issues were the force behind the rally, as investors remained buoyed by a statement made late on Wednesday by state-owned Central Huijin Investment that it would maintain "market operations" to boost its stakes in the Big Four state-owned lenders.

In a statement to the Hong Kong exchange late yesterday, Huijin said it had on Wednesday bought 5.73 million shares of Agricultural Bank of China, 2.81 million shares of China Construction Bank, 3.84 million shares of Bank of China and 4.73 million shares of Industrial and Commercial Bank of China. Before those deals, it had over the past 12 months raised its stakes to 40.16 per cent of ABC, 57.15 per cent of CCB, 67.64 per cent of BOC and 35.43 per cent of ICBC.

"The stabilising onshore market and Huijin's consistent purchase of China banking issues helped improve sentiment," said Paul Pong, the managing director of Pegasus Fund Managers, who thinks the index will pierce 21,300 in the short term.

Shares of CCB rose 1.77 per cent to finish at HK$5.76, while ICBC climbed 1.43 per cent to HK$4.96, ABC jumped 1.26 per cent to HK$3.22 and BOC added 0.99 per cent to HK$3.07.

Traders and fund managers expect the growth outlook to stabilise on the mainland, and the relative lower value of mainland issues to drive the Hang Seng Index to test the intra-year high of 21,680, which it hit in February.

The H-share index rose 114.08 points, or 1.12 per cent, to finish at 10,345.28, outperforming the Hang Seng for the second week.

"What I like in the Hong Kong stocks is the Chinese part, which is pretty cheap," said Francis Cheung, the managing director of China-Hong Kong strategy at CLSA.

China-related stocks are trading at an average price-earnings ratio of 8.5 times, against about 10 times for the Hang Seng Index.

Investors are waiting for more signs about the mainland's economic outlook, with trade figures for last month due out today and inflation data on Monday.

"Cyclical sectors like cement, car and railway issues look attractive if the economy picks up, and bank stocks could get a fillip if there is another cut in the reserve ratio requirement," Pong said.

Meanwhile, Harvest MSCI China A Index ETF, an exchange-traded fund launched by Harvest Global Investments and the first financial product traded in both Hong Kong dollars and yuan in the city, closed at HK$9.88 on its debut. The counter traded between HK$9.83 and HK$10, on a turnover of HK$23 million.

Additional reporting by Eric Ng