Hong Kong shares rise to 7-mth high, China tepid again

Last Updated: Wed, Oct 17, 2012 06:02 hrs

(Updates to midday)

* HSI +1 pct, H-shares +1.2 pct, CSI300 flat

* Chinese shipping, materials sector among top gainers

* Worst "probably over" for China market: Credit Suisse

* Viva China surges after Li Ning purchase

By Clement Tan

HONG KONG, Oct 17 (Reuters) - Hong Kong shares rose to a seven-month high on Wednesday, tracking an Asia-wide rally powered by strength in riskier sectors after better-than-expected U.S. corporate earnings cheered investors.

Resource-related companies and the shipping sector saw some of the biggest percentage gains, with China Merchant Holdings jumping 4.2 percent, Cosco Pacific up 3.8 percent and Aluminum Corporation of China (Chalco) rising 3 percent.

But turnover stayed weak and mainland Chinese markets underperformed, ending a choppy morning slightly higher as investors await China's third-quarter GDP data on Thursday that is expected to return the slowest quarterly growth since 1999.

The CSI300 Index of the top Shanghai and Shenzhen listings was flat at midday, while the Shanghai Composite Index edged up 0.1 percent. The China Enterprises Index of the top Chinese listings in Hong Kong jumped 1.2 percent.

The Hang Seng Index rose 1 percent at midday to 21,409.1, the highest intra-day level since March 19. The benchmark has now retraced more than 90 percent of its fall from February highs to June lows.

"The important thing in the short term is stabilisation in the Chinese economy," Vincent Chan, Credit Suisse's China equity strategist, told Reuters on Wednesday.

In the longer term, Chan added, a more proactive approach by Chinese leaders in addressing bigger structural problems in the economy could bring investors back into the fold.

Still, in a report dated Oct. 16, Chan said the worst in the Chinese market is "probably over" given data signs that the slowdown in the world's second-largest economy may have bottomed out. He advised investors to add some risk to their portfolio.

Chan upgraded the Chinese banking, material and transportation sectors to "overweight" and turned a little more optimistic on capital goods while downgrading consumer staples and technology to "underweight".


On Wednesday, Chinese banks resumed their recent ascent as investors rotated into growth-sensitive sectors.

Industrial and Commercial Bank of China (ICBC) rose 1.6 percent in Hong Kong, hovering at its highest since early May. ICBC gained 0.5 percent in Shanghai.

After lagging the broader offshore Chinese market for much of 2012, ICBC jumped more than 9 percent in September and is up 8.3 percent in October.

It is up 7.6 percent for the year, compared with the 16 percent gain for the Hang Seng Index and 5.6 percent rise for the China Enterprises Index.

But ICBC is still trading in Hong Kong at a 42 percent discount to its historical median forward 12-month earnings and a 46 percent discount to its forward 12-month price-to-book value, according to Thomson Reuters StarMine.

Shares of sports talent management firm Viva China surged 89.2 percent after it announced plans to buy a 25 percent stake in Chinese sportswear group Li Ning for about $175.5 million.

News of the proposed deal sent Li Ning's shares, which were trading for the first time this week, down 3.7 percent. (Editing by Richard Borsuk)

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