Hong Kong, China shares up but conviction lacking
HONG KONG, May 14 — Hong Kong and China shares edged higher today, led by mainland developers, while the banking sector was mixed after the Chinese central bank moved on Saturday to bolster lending to counter signs of an economic slowdown.
The gains came in choppy trade, due partly to low turnover, as investors eyed the possibility of further responses by Beijing to weak April data. Political uncertainty in the euro zone also tempered the appetite for risk.
China’s CSI300 Index and the Shanghai Composite Index were each up 0.2 per cent at midday. The China Enterprises Index of the top Chinese listings in Hong Kong gained 0.1 per cent.
The Hang Seng Index was up 0.3 per cent at 20,022.8, bouncing off its 200-day moving average at 19,859.2.
If benchmarks hold onto gains on the day, it would be the first gain in eight days for the Hong Kong index and the first in five for the CSI300.
“The April data looked very bad, the RRR cut over the weekend on its own probably won’t be enough and ambivalence in the markets today suggests as much,” said Edward Huang, Haitong International Securities’ equity strategist.
While a stimulus on the scale of the one seen in 2009 was unlikely, investors were expecting more supportive monetary and fiscal policy moves from Beijing given that most leading indicators disappointed, Huang added.
Today, Chinese developers were among the top performers. The Shanghai property sub-index was an outperformer among sectors, up 0.9 per cent. Poly Real Estate gained 1.9 per cent, while Shenzhen-listed China Vanke gained 0.6 per cent.
The People’s Bank of China delivered a 50 basis point cut in banks’ reserve requirement ratio (RRR) on Saturday, effective from May 18, the third cut in six months and one that investors had called for after data on Friday showed the economy weakening, not recovering, from its slowest quarter of growth in three years.
The move should free up an estimated 400 billion yuan (RM193.7 billion) for lending, which Deutsche Bank analysts believe will be positive for the Chinese property sector.
“We believe that this additional liquidity would be applied to financing for infrastructure projects and first-time home mortgages, while project financings for developers (mainly non state-owned, and weaker developers) would generally remain tight,” DB analysts said in a note dated May 14.
Agile Property was among the leading lights among Chinese developers in Hong Kong, up 4.6 per cent. China Overseas Land & Investment gained 1.5 per cent, while China Resources Land rose 1 per cent.
China banks mixed
Chinese banks were mixed by midday, with most analysts suggesting the cut in reserve requirements would have a minimal financial impact on the sector.
Underscoring the divergence in opinion between onshore and offshore markets, the country’s largest lender, Industrial and Commercial Bank of China (ICBC) gained 0.5 per cent in Shanghai but fell 0.8 per cent in Hong Kong.
Shares of wind power generation company China Longyuan Power Group Corp Ltd dived 10.6 per cent to HK$5.22 in heavy volume after it announced plans to issue 1.36 billion new H-shares.
Longyuan’s all-time low, recorded on August 11 last year, stands at HK$5.07. It has fallen 14 per cent in 2012 after two straight annual losses and is currently trading at a 12-month forward earnings multiple that is a 38 per cent discount to its historical median, according to Thomson Reuters StarMine.
Citi analysts downgraded the stock from “buy” to “neutral” and cut their target price by 10 per cent from HK$7.25 to HK$6.50. They cited the risk of up to 5.5 per cent earnings-per-share dilution in the next 12 months.
A possible move by Beijing later this year mandating power grids to buy a portion of electricity from renewable sources will also have a “mild effect” on Longyuan, Citi analysts said in the same note today. — Reuters
