Hong Kong shares surged to their best day in two weeks on Monday, on strength in Chinese cyclical names after manufacturing data on China alleviated fears of a hard landing in the world's second-largest economy. The gains came in thin turnover, suggesting that short covering gave the market a bigger boost than fresh buying.
Still, analysts hoped that the HSBC China Flash Purchasing Managers' Index (PMI) for October, which showed the mainland manufacturing sector snapped a three-month contraction, could encourage investors. The HSBC report and earnings from Chinese companies this week "should suggest that the pessimism on China is overdone and dissipate a lot of worries," said Peter So, co-head of research at CCB International Securities in Hong Kong. The Hang Seng Index closed up 4.1 percent at 18,771.8, scaling a gap between 18,411 and 18,675 formed between October 17 and 18, with the peak on October 17 at about 18,908 seen as near-term resistance.
Several other gaps on the charts opened up after steep falls in August and September precipitated the benchmark's worst quarter in a decade, pointing to stiff resistance ahead. Energy and materials sectors led gains on Monday. Jiangxi Copper Co Ltd jumped 11.2 percent while China Coal Energy Co Ltd rose 7.6 percent. Chinese property counters were also lifted after Moody's Investors Service said on Monday that most of its rated Chinese developers would not face liquidity risks in the next 12 months, but it pointed out a challenging operating environment as Beijing keeps its tightening measures in place.
China Resources Land Ltd led percentage gains among Hang Seng Index components, up 10 percent, clawing back about half of its losses last week. Strength in resources and financial stocks also helped the Shanghai Composite Index. It closed up 2.3 percent at 2,370.3, snapping a four-day losing streak, with A-share turnover at the highest in almost a week.
Major Chinese banks, expected to release earnings throughout this week, outperformed. Agricultural Bank of China Ltd (AgBank) gained 1.9 percent in Shanghai in trading that was 1.6 times its 30-day average volume there. AgBank gained 8.1 percent in Hong Kong, continuing its recovery after slumping 37 percent in the last quarter. In all, financials and resource stocks accounted for the top eight boosts to the Shanghai benchmark. PetroChina was its largest boost, up 1.9 percent.
Sinohydro, the company that built the Three Gorges Dam, jumped by as much as 38 percent on its first day of trading, eventually closing up 17 percent. It has since lost more than 13 percent from that closing price, but eked out a 0.9 percent gain on Monday.