Hong Kong: Stocks rally to one-year high on earnings optimism

[HONG KONG] Hong Kong stocks climbed to their highest level in a year after Tencent Holdings, Ping An Insurance (Group) and Lenovo Group earnings topped estimates.

The Hang Seng Index jumped 1.6 per cent at the midday break. Tencent, which has the biggest weighting on the gauge, surged to a record after reporting a 47 per cent rise in quarterly profit. Ping An Insurance and Lenovo gained at least 3.4 per cent. A measure of mainland developers headed for this year's highest level after a plot of land sold for a record in Shanghai. Cathay Pacific Airways dropped for a second day after its first- half profit tumbled 82 per cent.

Hong Kong's benchmark equity index has climbed 26 per cent from its February low, one of the world's best performances, as fears of a Chinese hard landing receded and the city's property market stabilised amid an improving interest-rate outlook.

The announcement of a long-delayed exchange link with Shenzhen this week and better-than-expected corporate profits have given extra vigor to the rally, even as technical indicators flash a warning that gains may be overheating.

"There's a euphoria," said Francis Lun, chief executive officer at Geo Securities in Hong Kong. "Given the economic conditions, investors were not expecting too much from earnings."

EARNINGS REPORTS

Tencent jumped 5.9 per cent, taking its rally in 2016 to 34 per cent, the most among Hang Seng Index constituents. Second- quarter sales and profit beat analysts' estimates as the operator of the WeChat and QQ social network services splashed out on mobile games and content. Ping An, China's second-largest insurer, advanced 4 per cent after saying its first-half profit rose 18 per cent.

Lenovo climbed 3.4 per cent. The world's biggest PC maker posted a 64 percent gain in first-quarter profit as it cut costs and was helped by new Motorola smartphone models.

China Unicom (Hong Kong) jumped 7 per cent, the biggest gainer on the Hang Seng Index, even as its first-half net income tumbled 80 per cent. Chief Executive Officer Wang Xiaochu said the worst will soon be over for the company and that profit is likely to rise in the first half of next year.

The Hang Seng Index traded at 23,164.69. The gauge's 14-day relative strength index has risen beyond 70, a level that signals to some traders that a rally is about to reverse. The Hang Seng China Enterprises Index increased 1 per cent.

PROPERTY SHARES

The Shanghai Property Index jumped 3.5 per cent, after the city's municipal a plot of land in Shanghai sold for a record, underscoring soaring asset prices in China's biggest cities. The gauge has risen more than 18 per cent this month, the most since April 2015, amid speculation that merger activity in the industry will accelerate after China Evergrande Group acquired stakes in China Vanke Co. and Langfang Development Co.

The Shanghai Composite added 0.4 per cent. Chinese state- owned funds sold bank shares as the nation's benchmark equity gauge jumped to a seven-month high earlier this week, according to people with knowledge of the matter.

China Securities Finance Corp and other government-linked funds sold shares including Bank of Ningbo on Tuesday, according to the people, who asked not to be identified because the information isn't public. Bank of Ningbo slumped 6.8 percent in Shenzhen on Tuesday. It advanced 1.7 per cent on Thursday.

Beijing North Star Co. climbed 3.8 per cent in Shanghai after the property developer's six-month profit increased about 30 per cent from a year earlier. Longfor Properties extended its gains in Hong Kong, adding 4.9 per cent after saying its first-half core profit climbed.

Real estate stocks advanced even as data showed Chinese home prices increased in fewer cities, as local government joined some of the nation's largest hubs in imposing residential property curbs to quell soaring values.

New-home prices excluding government-subsidised housing gained in 51 cities last month, from 55 in June, among the 70 that the government tracks, the National Bureau of Statistics said Thursday.

BLOOMBERG