Hong Kong Stocks Rise on Earnings, Stimulus Bets After China PMI

Mar 24, 2014 5:57 am ET

March 24 (Bloomberg) -- Hong Kong stocks rose on favorable earnings reports, with Chinese shares listed in the city extending a rebound after entering a bear market last week. Companies rallied as mainland manufacturing missed estimates, spurring bets the government will act to stabilize growth.

The Hang Seng China Enterprises Index, also known as the H- share index, rose 2.8 percent to 9,694.96 at the close in Hong Kong. The gauge has climbed 5.3 percent since capping a 20 percent drop from a December peak on March 20. The Hang Seng Index added 1.9 percent to 21,846.45. HSBC Holdings Plc’s and Markit Economics Ltd.’s preliminary Purchasing Managers’ Index for March today fell to 48.1, missing economist expectations for a reading of 48.7 and a final figure of 48.5 the previous month. A number below 50 indicates contraction.

“We reached a level where the more deterioration we see in China, the more we will move away from acceptable zone of slowdown to the authorities,” said David Gaud, a money manager who helps oversee about $120 billion at Edmond de Rothschild Asset Management. “There’s a point where the market has no choice but to anticipate some sort of positive measures.”

Yanzhou Coal Mining Co. surged 6.6 percent, the biggest daily advance since September, after profit beat estimates and analysts at Credit Suisse Group AG and JPMorgan Chase & Co. upgraded the stock. Great Wall Motor Co. added 7.7 percent after net income jumped from a year earlier. Citic Pacific Ltd., which was suspended from trading in the afternoon pending release of inside information, and PetroChina Co. led the Hang Seng Index higher. Hutchison Whampoa Ltd. dropped the most in more than two years after agreeing to sell a stake in A.S. Watson & Co., with the valuation indicated for the retail unit lower than expected.

China Economy

The H-share index lost 10 percent this year amid data that showed falling exports, weaker manufacturing and slower retail sales in China. The measure was valued at 1.1 times net assets, the biggest discount since September 2003 to the MSCI All- Country World Index of developed and emerging shares, which had a ratio of 2.

Chinese Premier Li Keqiang has set 7 percent as the bottom line for growth. The economy may expand at that rate this year, China Securities Journal reported, citing Wang Jian, a researcher for the National Development & Reform Commission. The nation’s official 2014 expansion target is 7.5 percent after rising 7.7 percent last year.

Companies can issue preferred shares if they are included in the Shanghai Stock Exchange 50 A-Share Index, the China Securities Regulatory Commission said in a statement on its verified microblog account. Publicly traded companies can also issue the stock to pay for acquisitions and buy back shares, the agency said.

Hutchison Drops

Hutchison slumped 5 percent to HK$101.60 today, the biggest decline since Oct. 18, 2011. The company controlled by Li Ka- shing, Asia’s richest man, said Temasek Holdings Pte will pay HK$44 billion ($5.7 billion) for a 25 percent stake in Watson. The valuation indicated by the sale disappointed analysts at JPMorgan, Credit Suisse and Morgan Stanley.

Of 131 companies in the Hang Seng Composite Index that reported annual earnings this month for which Bloomberg had estimates, 53 percent exceeded profit projections. About 300 businesses on the gauge are scheduled to release results in March, according to data compiled by Bloomberg.

Yanzhou Coal surged 6.6 percent to HK$5.99 after JPMorgan boosted its rating on the stock to overweight from neutral, and Credit Suisse increased it to neutral from underperform. The energy producer reported fiscal-year net income of 777.4 million yuan, beating the 182.3 million yuan median estimate in a Bloomberg survey.

PetroChina rose 5.5 percent to HK$8.29 to lead gains on the Hang Seng Index. Barclays Plc said it prefers PetroChina to China Petroleum & Chemical Corp. based on higher earnings growth and a stronger balance sheet.

Futures on the Standard & Poor’s 500 Index rose 0.3 percent after the gauge dropped 0.3 percent on March 21.

Pipe-producer Hilong Holding Ltd. tumbled 19 percent to HK$4.25, its steepest decline on record, after full-year earnings trailed estimates.