Hong Kong shares at 16-month high, China weak

Last Updated: Wed, Dec 12, 2012 05:20 hrs

* HSI +0.5 pct, H-shares +1.0 pct

* CSI300 -0.2 pct, Shanghai Comp -0.1 pct

* Guoco Group surges on privatisation bid

* A-share vs H-share divergence continues

* C.Suisse bullish on Macau stocks, Sands China up

By Vikram Subhedar

HONG KONG, Dec 12 (Reuters) - Hong Kong shares rose to a 16-month high on Wednesday, widening their outperformance over wobbly mainland peers, as stepped-up merger activity and a strong showing overnight on Wall Street encouraged investors to extend a recent rally.

The Hang Seng Index ended the morning session up 0.5 percent at 22,441.7. The China Enteprises index rose just over 1 percent.

In China, the CSI300 of top Shanghai and Shenzhen listings fell 0.2 percent, retreating further from Monday's one-month high. The Shanghai Composite eased 0.1 percent.

The Hang Seng index is up 21.7 percent on the year. The Shanghai Composite is down 5.8 percent while the CSI300 is off 3.9 percent year-to-date.

Large-cap shares were the main drags on onshore markets on Wednesday with Sinopec Corp down 0.5 percent and China Vanke off 1.1 percent.

Utility company Huaneng Power extended its recent slide falling another 1.5 percent and bringing its losses this week to 3.8 percent on concerns over anticipated electricity-tariff cuts in 2013.

While mainland markets remained sluggish, many Hong Kong shares moved up, underpinned by foreign investors' optimism on China. Making healthy gains on Wednesday were growth-sensitive sectors, property companies and Macau casino stocks.

Guoco Group, a holding company which has investments in financial services, property and leisure businesses, saw shares surge 29.2 percent after its major shareholder offered to take the company private.

"Privatisation is one theme worth keeping an eye on," said a Hong Kong-based fund manager, adding that cash-rich majority shareholders will seriously consider taking advantage of low valuations and cheap money to take listed companies private.

In China, the manager added, "it's tough to get a clear picture of what's happening on the ground but you can infer that domestic investors remain relatively pessimistic."

Hong Kong asset prices are key beneficiaries of monetary easing by global central banks to kickstart their economies.

With the flood of money coinciding with a steady improvement in Chinese economic data, offshore investors for whom Hong Kong remains the most popular gateway into China have aggressively returned to rebuild positions.

The International Monetary Foundation sounded a note of caution, however, warning that Hong Kong property prices could drop abruptly, leading to wider economic consequences.


Sands China and Galaxy Entertainment each rose 2.5 percent after brokerage Credit Suisse named the two as among its favoured Macau picks.

Credit Suisse expects Macau gambling revenue in December to grow as much as 31 percent from a year earlier.

Casino stocks are among the top performers in Hong Kong in this year as investors have rewarded brisk earnings growth. Sands China shares are up 52 percent year-to-date and poised for a third straight year of gains.

Shares of consumer staples companies, which have seen heavy interest this year as they offered relative safety, were weaker as investors switched to more risky sectors.

Tingyi Holdings, which makes noodles and beverages, fell 1.8 percent, bringing its losses this quarter to 6.6 percent. Personal hygiene products maker Hengan International shed 1.2 percent.

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