Notes From Hong Kong: HSI Rises From a 5-Week Low

The Hang Seng Index appears to have resumed its upward move after dropping for 5 weeks as concerns about the global and Chinese economies abate. Banks and property stocks did well, boosted by the auction of a luxury residential site which brought in 26% more than what analysts estimated. The plot set a per-square-foot record for the Kowloon Peninsula of HK$16,587, according to real estate broker Midland Holdings Ltd.

Volumes have significantly improved in the past 4 days and are back at levels last seen in April-May. Bullishness will be supported by New York's Friday's close and move the index above the 21000 level.

INDICES 1 week 4 weeks YTD Hang Seng Index 1.8% -3.3% -4.1% HS China Enterprises 3.3% -3.2% -8.0% FTSE/Xinhua A50 1.0% -1.2% -24.2% Shanghai Composite 1.7% -0.1% -19.0% CSI 300 2.2% 1.9% -18.0% US ETFs EWH 1.8% -0.1% 2.3% FXI 2.5% -2.4% -5.1% PGJ 3.1% -1.7% -1.8%

The mood has changed following the release of new data from China showing that the economy is still doing well. On Wednesday, China Federation of Purchasing and Logistics disclosed that the Purchasing Manager Index rose to 51.7 in August from 51.2 in July, the first rise in the index following three months of decline. The improvement was confirmed by the HSBC China Manufacturing Purchasing Managers Index which rose to 51.9 from 49.4, rebounding into expansionary territory after readings in July indicated the first contraction in activity in 16 months. On Friday, another positive view of the economy came from the HSBC Composite Output Index which rose to 54.6 in August, from 52.6 in the previous month, indicating a solid improvement in private sector business conditions.

While the Shanghai indices were up, financials did not do so well, as the group was down this week. On Friday the China Securities Journal said that loans with potentially high credit risk increased at four of China's five biggest banks during the second quarter from the preceding three months. On Wednesday, Ping An Insurance, China's second-largest life insurer, disclosed plans to increase its stake and acquire majority control in Shenzhen Development Bank for 29.1 billion yuan ($4.3 billion).

With all interim results out for the major Chinese banks, the China Business News wrote last week that China's 16 listed banks reported combined net income of RMB 343.4 billion in the first half of 2010, representing an increase of more than 30% year-on-year. In a separate report, the 21st Century Business Herald wrote, citing interim results among 15 listed Chinese banks, that 11 banks saw an increase in net interest spread compared with the same period of last year, while four reported narrowing spreads. Of the "Big Four" banks, China Construction Bank was the only one to report a year-on-year reduction in net interest spread over the period.

SECTORS – CHINA 1 week 4 weeks YTD CSI300 Energy 1.3% 0.1% -28.9% CSI300 Materials 4.6% 7.4% -19.0% CSI300 Industrials 2.8% 3.3% -10.6% CSI300 Cons. Discretionary 4.9% 9.9% -5.2% CSI300 Cons. Staples 6.0% 6.5% 0.5% CSI300 Healthcare 2.7% 4.8% 10.9% CSI300 Financials -0.1% -2.8% -26.3% CSI300 Technology 3.8% 3.3% 11.3% CSI300 Telecom 5.1% 2.3% -22.4% CSI300 Utilities -0.8% -3.2% -18.3% SECTORS – HONG KONG 1 week 4 weeks YTD HS Financials 2.1% -5.1% -8.7% HS Utilities 0.6% -0.1% 10.4% HS Property 1.9% -2.5% -2.4% HS Commerce & Industry 1.6% -1.6% 0.1%

Interim results from FXI constituents:

China Pacific Insurance: On August 29, Bloomberg writes:

"China Pacific Insurance,the nation’s third-biggest insurer, said profit rose in the first half as premiums expanded and the company curbed costs. Net income climbed to 4.02 billion yuan ($591 million), or 0.47 yuan a share, from 2.41 billion yuan a year earlier, the company said in a statement to the Hong Kong stock exchange.

China Communications Construction: On August 31, Dow Jones writes: "China Communications Construction Co. (1800.HK) reported Tuesday its first-half net profit rose 32% from a year earlier as Beijing's economic stimulus measures spurred infrastructure development. The infrastructure construction and port machinery manufacturer said its net profit for the six months ended June 30 totaled CNY4.0 billion, up from CNY3.03 billion. Revenue rose 24% to CNY120.15 billion from CNY96.84 billion."

FTSE Xinhua A50 is a market capitalization weighted index comprising the 50 largest “A” (domestic) shares listed in China. In Hong Kong the ETF 2823:HK tracks the index; in the US, FXI tracks a sister index including only the 25 largest mainland companies listed in Hong Kong. The Hang Seng China Enterprises Index covers 40 “H” shares issued by mainland companies listed in Hong Kong. In Hong Kong the ETF 2828:HK tracks the index. The Hang Seng Index currently covers the 43 largest Hong Kong listed companies by capitalization. These HK listed companies include a number of mainland Chinese companies. In Hong Kong the ETF 2800:HK tracks the index. In the US, EWH tracks the MSCI Hong Kong Index which is substantially different from the Hang Seng Index.

Disclosure: Long FT/Xinhua A 50

About the author: L. Desjardins

View the Original article