Saturday, May 18, 2024

Hong Kong stocks at 8-month highs on China property relief, US rate cut hopes

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Optimism is growing that China’s recovery will gather further pace after two key cities of Hangzhou and Xian scrapped all restrictions on home purchases, and both imports and exports beat projections last month. A Politburo meeting chaired by Communist Party boss Xi Jinping at the end of April vowed to tackle the crisis on the property market.

View of the city of Xian (Sian, Xi’an), Shaanxi province, China. Photo: Shutterstock

“The recovery in China’s fundamentals is continuing and corporate earnings are bottoming out,” said Song Yiwei, an analyst at Bohai Securities in Tianjin. “Meanwhile, expectations that the Fed will cut interest rates in September have been growing. All these factors are driving re-rating of Chinese stocks.”

The Hang Seng Index has extended its world-beating run since April, and has risen 6.8 per cent this month, as mainland China’s securities regulator pledged support by expanding the exchange link programme with the city and lifting the quality of listings.

China Construction Bank jumped 6.8 per cent to HK$5.64 and peer Industrial and Commercial Bank of China surged 4.1 per cent to HK$4.53, while China Resources Power soared 6 per cent to HK$21.10.

Speculations are swirling that the China Securities Regulatory Commission and the State Taxation Administration are mulling a proposal that will waive a 20 per cent dividend tax on the stocks mainland investors can buy via the exchange link programme with Hong Kong.

“We believe the proposed waiver is one of the ways the central government can support the Hong Kong stock market, which has been one of the worst performing markets globally since 2020,” said analysts at CGS International in a report which added high yield Hong Kong property stocks will be among the key beneficiaries if China regulators waive dividend tax for mainland retail investors.

Indeed, property stocks were among the biggest gainers with Shimao Group rising 56.7 per cent to HK$0.54 and China South City surging 44.6 per cent to HK$0.29.

Still, Daiwa Securities analysts say the rally could slow as fundamental drivers were weak, adding that selling pressures could rise if the index surges above 20,000, with the RSI pointing to an “overbought” signal on the charts.

“We perceive a “mean reversion” story, together with policy tailwinds in China, as the key drivers behind this, as investors are growing concerned on crowded trades in US and Japan markets, thus shifting some money back to “undervalued” China equities,” Daiwa strategist Patrick Pan said. “However, we don’t believe global investors are ready to change their bearish views on China equities yet, only reducing their “underweights” on China over the past few weeks.”

Looking ahead the focus will be on China April inflation data due Saturday. Consumer inflation probably accelerated to 0.2 per cent from 0.1 in March, while producer prices may have continued the deflationary trend with a 2.3 per cent decline, according to the consensus estimate of the economists tracked by Bloomberg.

Other major markets across Asia also rallied after the US jobless claims topped estimates to rise to the highest since August, hinting at a cooling jobs market that could justify a cut in interest rates by the Fed. Japan’s Nikkei 225 climbed 0.4 per cent, while South Korea’s Kospi added 0.6 per cent and Australia’s S&P/ASX 200 advanced 0.4 per cent.

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