China shares lifted by upbeat official PMI, Hong Kong firmer too

Thu Aug 1, 2013 12:51am EDT

Related Topics

* HSI +0.6 pct, H-shares +0.4 pct, CSI300 +1.2 pct

* Volumes modest as China HSBC PMI divergence spawns doubt

* Rongsheng soars after plans for convertible bonds

* Cheung Kong cuts 2013 losses ahead of H1 earnings

By Clement Tan

HONG KONG, Aug 1 (Reuters) - China shares may post a third-straight daily gain, with Hong Kong markets also firmer on Thursday, as better-than-expected official manufacturing data and a second cash injection by the central bank gave cyclical sectors a lift.

Gains came in volumes that were only modestly stronger from recent levels, however, reflecting a lack of conviction after a separate private survey weighted more to smaller companies showed factory activity at its lowest in nearly a year.

By midday, the CSI300 was up 1.2 percent, while the Shanghai Composite Index climbed 0.9 percent. The China Enterprises Index of the top Chinese listings in Hong Kong gained 0.4 percent.

The Hang Seng Index climbed 0.6 percent to 22,010.3 points, after earlier testing its highest since June 5. All four indexes went into the midday break off their respective intraday highs.

"The positive official PMI shows corporate confidence improved after official comments in the last few weeks provided some assurance on growth, which along with the cash injections this week, is helping markets," said Jackson Wong, Tanrich Securities' vice-president for equity sales.

Angang Steel spiked 4.4 percent in Hong Kong and 1.4 percent in Shenzhen after the official PMI, which focuses on big and state-owned firms, rose to 50.3 in July from 50.1 in June, surpassing expectations for 49.9.

The HSBC PMI, which covers small and private companies, dipped to 47.7 in July from June's 48.2 - the weakest reading since August 2012 and matching a preliminary figure published last week.

Thursday's China data came after the State Council again pledged to step up spending on urban infrastructure projects and public services in a statement after a regular meeting late on Wednesday.

While the country's Iron and Steel Association said on Wednesday that steel demand was expected to remain weak in the second half, Angang is likely seen as an outlier, expecting a return to profitablity for a second successive quarter.

China shipping, another sector suffering from chronic overcapacity, also had some respite.

Shares of China Rongsheng, the country's largest private shipbuilder, surged 9.8 percent after announcing plans to issue HK$1.4 billion ($180.52 million) in convertible bonds. Barclays said conversion would result in a 20 percent increase in outstanding shares, while pointing out the subscriber of the issue to be a member of a private equity VMS Investment Group.

The embattled shipbuilder had appealed to the government and large shareholders for financial assistance last month, after cutting its workforce and delaying payments amid a global shipping downturn.

Sentiment was further buoyed by a second cash injection by the People's Bank of China this week, bringing the week's total to 136 billion yuan ($22.19 billion).

This is its first time it has actively injected cash into the money markets via reverse repos since February, in another sign that Beijing is ready to support growth via targetted steps as it shifts its focus towards quality growth.

CHINA PROPERTY STRONG AGAIN

Property and cement A-shares were also buoyed by a private survey that showed new home prices in China rising 7.8 percent in July from a year earlier.

The official China Securities Journal reported an official with the National Development and Reform Commission as saying that home price increases in first tier cities are not serious and the trend will continue.

Poly Real Estate climbed 2 percent in Shanghai, while Anhui Conch Cement climbed more than 2 percent each in Shanghai and Hong Kong.

Cheung Kong Holdings climbed 1.8 percent ahead of its interim earnings due after markets shut on Thursday. Down 6.7 percent on the year, it is currently trading at a 34 percent discount to its historical median 12-month forward earnings multiple, according to Thomson Reuters StarMine.

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