Hong Kong blue chips on Monday tracked a rebound in global equities to rise nearly 6 percent in their best one-day percentage gain since October 1998 after the US Federal Reserve cut a key interest rate it charges banks to stabilise credit markets.
In their best one-day performance since May 2000, Hong Kong-listed China plays leapt 8.7 percent following news that Beijing was allowing Chinese residents to invest directly in Hong Kong securities for the first time under a pilot programme to be launched in the northern city of Tianjin.
"With the build-up of foreign exchange and pressure created by the rising currency, the Chinese government is encouraging individuals and institutions to invest offshore in another step to legitimise the grey market outflows," said Erwin Sanft, research director at BNP Paribas in Hong Kong.
The market accelerated in the afternoon following the pilot investment programme announcement. The index closed up 1,208.50 points at 21,595.63 on mainboard turnover of HK$105.3 billion (US $13.5 billion), the sixth-highest on record. Blue chips are now at late May levels.
The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, rose 961.25 points to 11,963.77. "There should be more upside in the next few days," said Ernie Hon, strategist at ICEA Securities, predicting the market may put on an additional 500 points on Tuesday.
But analysts said volatility would continue in the near-term amid uncertainties about credit conditions. Benchmark stocks led the rally, with China Life, the day's most traded stock, leaping 9.4 percent to HK$30.20. China Mobile, supported by its strong interim results posted last week, notched up an 8.5 percent gain to HK$87.85.
Bank of China jumped nearly 11 percent to HK$3.77 and China Construction Bank vaulted 11.7 percent to HK$5.45. Hong Kong Exchanges and Clearing Ltd halted a three-session declining steak, advancing 9.2 percent to HK$116.10. China Shenhua Energy Co Ltd, the world's second-largest coal producer by reserves, bolted 9.2 percent to HK$27.20 after posting strong interim results.
But Yanzhou Coal's earnings disappointed and on Monday the company said it was unlikely to meet its 2007 export target. Its shares underperformed, rising 0.6 percent to HK$10.60. HSBC Holdings Plc climbed 3 percent to HK$139.90. The global lender said on Monday it was in talks to buy a majority stake in Korea Exchange Bank (KEB), valued at $4.5 billion and held by Lone Star.
Top mainland properties plays bounced back sharply. China Overseas Land and Investment Ltd, the country's largest real estate developer, surged 10.6 percent to HK$14.24 in heavy trade. Goldman Sachs upgraded the stock's target price by 43 percent to HK$17.78 on expectations of more acquisitions that will boost the company's net asset value. Shimao Property jumped 11.2 percent to HK$17.90.
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