Market Wrap: Fed QE3 powers HK stocks to more than four-month high

Hong Kong stocks rose to their highest level in just over four months, led by property and commodity-related issues, on speculation that the US Federal Reserve’s potentially unlimited quantitative easing measures will boost asset prices in the region.

The benchmark Hang Seng Index rose 2.9 per cent, or 582.15 points, to end at 20,629.78, the highest level since May 4, 2012. The Hang Seng China Enterprises Index, which tracks Hong Kong-listed Chinese enterprises, gained 3.68 per cent to end at 9,829.43.

“What took us by surprise is the language that the Fed was using," David Hensley, US-based Global Economist at JP Morgan told a news briefing in Hong Kong, adding that the Fed was underscoring its determination to the get the US economy back on track. “Potentially the package could turn out to be (a) much larger commitment than the US$200 billion to US$300 billion we had in our minds.”

The US Federal Reserve announced overnight that it would buy US$40 billion a month of securities supported by real estate loans and extend the duration of its ultra-low short-term interest rates till mid-2015, in a bid to bolster an anaemic recovery in the world's largest economy.

Property, energy and commodities stocks gained across the board in reaction to the Fed’s announcement when the market opened on Friday, as the weaker US dollar spurred investors’ risk appetite, pushing them to buy more equities. Materials and energy firms led gains on the Hang Seng Composite Index, the city’s broadest measure of the stock market's performance.

“It’s time to buy now. We expect a continued equity market rally in the wake of the Fed’s action. People have been sitting on cash for too long,” said Michael Wong, a director for securities and asset management at Convoy Asset Management Ltd. 

Sun Hung Kai Properties (0016.HK) gained as much as 4.39 per cent to HK$111.8 after its earnings beat market estimates, triggering a slew of target price upgrades by financial institutions, including Goldman Sach and Credit Suisse. Daiwa said in a morning note that its core earnings showed “impressive growth” and would be boosted further by a strong property pipeline. 

The Hang Seng Property Index, which tracks nine heavyweight property developers, rose 3.19 per cent to the highest level since August 2011.

“We will reduce our cash position and start to buy more equities, especially those property issues as they are sensitive to the (Fed) easing measures,” Renault Kam, director at GF Asset Management (Hong Kong), which oversees US$100 million.

Commodities producers, especially gold stocks, gained sharply on speculation that a flood of dollars would boost demand for the precious metal as a way to maintain asset value.

Zijin Mining Group (2899.HK) gained 11.36 per cent to HK$3.04, while Zhaojin Mining (1818.HK) gained 15.54 per cent to HK$13.38.

Sun Century Group (1383.HK), which develops mid-range residential and commercial properties in Guangdong, surged by 239.66 per cent to HK$1.97. The company on Friday posted a 74.25 million first-half net loss, compared with 20.85 million yuan net profit a year earlier. Most market watchers, however, said they did not know why the stock surged despite posting an interim loss.