Hong Kong shares rose for a third straight day on Tuesday, with investors piling into Chinese infrastructure-related sectors and services as Beijing pushes to stimulate demand in the world's second largest economy. Worries over the debt crisis in Europe were also feeding investor interest in companies focused on China, traders said.
The Hang Seng Index closed 1.4 percent higher, the best single day gain this month. The index stood at 19,055.5 and above the 50 percent Fibonacci retracement of its rise from October lows to February highs, at about 8,996.
Chinese shares listed in Hong Kong led the gains, with the China Enterprises Index jumping 2.2 percent. Angang Steel was among the biggest percentage gainers among components, spiking 7.7 percent. "I doubt anybody is expecting Europe to resolve anytime soon, so China's ongoing stimulus efforts is becoming an easy trade for investors," said Edward Huang, Haitong International Securities' equity strategist.
Chinese Premier Wen Jiabao called for faster opening of the country's service sector further boosting sentiment. The large cap-focused CSI300 Index jumped 1.4 percent to close at its highest in almost three weeks. The Shanghai Composite Index rose 1.2 percent in the highest bourse volume since May, 29 percent more than its 20-day average.
Turnover in Hong Kong on Tuesday improved markedly from Monday, but was still 9 percent below its 20-day average. China's official manufacturing managers' index (PMI), expected this Friday, may have eased to 52.2 in May from a 13-month high in April, affirming the economy is slowing for the sixth consecutive quarter even as the government steps up stimulus measures, a Reuters poll showed.
But Beijing's push to accelerate approvals of infrastructure investments is starting to improve loan demand, a key barometer of China's economic health, the official Shanghai Securities News reported on Tuesday. Chinese steel makers saw some of the strongest percentage gains. Angang Steel surged 7.7 percent in Hong Kong, its best day since December 1, to close at its highest since May 14. It is still down 17 percent in 2012.
Chinese services play were also strong. Haier Electronics rose 5.6 percent to bring its 2012 gains to 33.7 percent, after it slumped 23 percent in 2011. In a note to clients on Tuesday, Credit Suisse, though, said the impact of Beijing's stimulus will be "much more muted" than the package Beijing announced in October 2008.
"The focus will be mainly be on infrastructure rather than consumer subsidy programmes and property-related projects as the housing prices are still high," Credit Suisse China equity strategists led by Vincent Chan,said in the same note. China-focused noodle and beverage maker Tingyi (Cayman Islands) Holdings Corp slumped 6.2 percent after posting underwhelming quarterly earnings late on Monday. Despite reporting a 61.2 percent rise in net profits in the first quarter, investors focused on its instant noodles and beverage sales, which according to Goldman Sachs analysts, were weaker than expected.
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