Hong Kong shares close at 16-month high, China stocks gain too

Last Updated: Wed, Dec 12, 2012 08:50 hrs

* HSI +0.8 pct, H-shares +1.5 pct

* CSI300, Shanghai Comp both +0.4 pct

* Guoco Group surges on privatisation bid

* A-share vs H-share divergence broadens

* C.Suisse bullish on Macau casino stocks

By Vikram Subhedar

HONG KONG, Dec 12 (Reuters) - Hong Kong shares rose to a 16-month closing 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 day up 0.8 percent at 22,503.4. The China Enteprises index rose 1.5 percent, outpacing gains by other Asian benchmarks.

In China, the CSI300 of top Shanghai and Shenzhen listings and the Shanghai Composite recovered from earlier losses to close up 0.4 percent.

A rebound in financial stocks as well as a 4.7 percent jump in premium liquor producer Kweichow Moutai helped mainland markets close higher on the day.

ICBC, up 1.3 percent, was the biggest boost on the CSI300.

China's domestic indexes have bady underperformed Hong Kong's, with the Hang Seng up 22 percent this year compared with a 5.3 percent decline for the Shanghai Composite and an 3.3 percent decline for the CSI300.

Auto company SAIC, down 0.7 percent, and refiner Sinopec, down 0.2 percent, were the biggest drags on the CSI300.

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 30.6 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.

"Liquidity is driving Hong Kong at the moment, so this rally can continue even if Shanghai does not move much," said the manager, adding that domestic investors in China seemed more pessimistic than their offshore peers.

Hong Kong asset prices are key beneficiaries of monetary easing by global central banks to try to aid 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 rose 2.9 percent while Galaxy Entertainment jumped 3 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 are poised for a third straight year of gains.

Shares of consumer staples companies and Hong Kong utilities, 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 1.1 percent, bringing its losses this quarter to 6.6 percent. Personal hygiene products maker Hengan International shed 0.9 percent.

Hong Kong and China Gas fell 1.6 percent and was the top loser among Hang Seng components.

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