Hong Kong shares rise to near 2-1/2-month high, earnings hopes support

Tue Aug 13, 2013 12:42am EDT

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* HSI +0.7 pct, H-shares +1.7 pct, CSI300 -0.1 pct

* Li & Fung climb 1 percent ahead of H1 earnings

* China cyclicals from shippers to steel extend strong gains

By Clement Tan

HONG KONG, Aug 13 (Reuters) - Hong Kong shares climbed to their highest in more than 2 months on Tuesday, as investors were hopeful that recent signs of stablility in the Chinese economy will translate into improved earnings outlooks for its companies.

Gains came in relatively robust turnover as the Chinese cyclical sectors extended recent strong gains with investors repositioning after a set of solid July economic data last week eased fears of a deepening slowdown in the world's second-biggest economy.

At midday, the Hang Seng Index was up 0.7 percent at 22,432.8 points, the highest since June 3. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 1.7 percent.

The Shanghai Composite Index was flat, while the CSI300 of the leading Shanghai and Shenzhen A-share listings slipped 0.1 percent from a two-month high.

"Investors are mainly concerned with the sustainability of the good China macro numbers we saw last week," said Francis Cheung, CLSA's Hong Kong-China strategist. He said investors should add cyclicals to their portfolio for the third quarter.

"Forward guidance issued by companies will give investors a more concrete sense of that and how that is filtering down to earnings," Cheung added, but he doesn't expect the results season will spur a significant reversal of outflows from China equities.

The Chinese property sector, which has already seen some robust earnings, was a standout outperformer in Hong Kong. Agile Property jumped 4.5 percent after posting robust July contracted sales figures.

Longfor Properties surged 7.2 percent, while Shimao Property rose 5.2 percent and China Resources Land and Country Garden each jumped nearly 4 percent.

Chinese cyclicals, battered in the last few months when sentiment on China was at its most bearish, recovered more ground with shippers, steel, cement and coal counters once again stonger.

Yanzhou Coal soared 4.1 percent to HK$6.82, headed for a fourth-straight daily gain, with chart resistance seen at around HK$7.01. Yanzhou Coal has now surged more than 27 percent since Thursday.

Mid-sized Chinese lenders were also stronger, buoyed on Tuesday by Industrial Bank's solid interim earnings. Its shares climbed 1.6 percent in Shanghai, while China Minsheng Bank soared 5.1 percent in Hong Kong and a more modest 0.6 percent in Shanghai.

Shares of exporter Li & Fong climbed 1.2 percent to its highest in a week ahead of its interim earnings due after markets shut on Tuesday. Its shares are now down 23 percent in 2013, compared to the 1 percent slide on the Hang Seng Index.

Li & Fung shares are trading at 15.6 times forward 12-month earnings, a 28 percent discount to its historical median, according to Thomson Reuters StarMine.

In the last 30 days, analysts have downgraded their full year earnings-per-share estimates for Li & Fung by an average of 18 percent, according to StarMine.

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