Hong Kong shares test 11-week high as Li & Fung surges, China flat

Thu Aug 15, 2013 12:43am EDT

* HSI +0.1 pct, H-shares +0.6 pct, CSI300 flat

* Brilliance China hits record high after H1 earnings impress

* Tencent reverses losses, edges higher despite profit miss

* Pharmaceuticals hurt by wider China bribery probe

By Clement Tan

HONG KONG, Aug 15 (Reuters) - Hong Kong shares tested 11-week highs on Thursday, lifted by a 12.5 percent surge for exporter Li & Fung, with corporate earnings in focus, while China markets were flat.

At midday, the Hang Seng Index was up 0.1 percent at 22,570.7 points after testing its highest since May 29. The China Enterprises Index of the top Chinese listings in Hong Kong gained 0.6 percent.

The Shanghai Composite Index edged up 0.1 percent as midday volumes declined from Wednesday, while the CSI300 of the leading Shanghai and Shenzhen A-share listings was flat.

Hong Kong gains came in the heaviest midday turnover in nearly two months as investors returned to the markets after a typhoon forced the suspension of trade on Wednesday.

"There is a lot of news today because there was no trade in Hong Kong yesterday. The China cyclical rally is giving way to corporate earnings," said Jackson Wong, Tanrich Securities' vice-president for equity sales.

After the market closed on Tuesday, Li & Fung, the world's largest supplier of goods to retailers including Wal-Mart Inc and Target, reported a 70 percent drop in first-half net profit but said it was on track for a recovery in 2013.

"Li & Fung's strong gains today may be quite surprising given its so-so earnings, but its forward guidance was a relief for some. Its shares have been highly shorted and its share price has been lagging the broader market," Wong said.

Short covering was a big part of Li & Fung's Thursday gains. Short selling had averaged almost 27 percent of its total turnover in the nine trading sessions in August before its earnings release.

Gains came in strong volumes and helped Li & Fung shares test chart resistance at HK$11.98, the bottom of a gap that opened up between Jan. 11 and Jan. 14. On the year, it is still down 13.3 percent, compared to the 0.3 percent loss on the Hang Seng Index.

PC maker Lenovo Group and automaker Brilliance China were two others buoyed by solid earnings. Lenovo climbed 2.4 percent, while Brilliance soared 9.2 percent to a record high as investors cheered its first dividend sine 2005.

The Chinese auto sector in Hong Kong was also lifted by a Reuters report that an industry body is helping the National Development and Reform Commission investigate whether foreign carmakers are setting minimum retail prices in China.

Daqin Railway spiked 9.1 percent in Shanghai, leading gains in the Chinese railway sector after China Business News reported Beijing will announce an investment and financing plan for the industry by year-end.

TENCENT REVERSES EARLY LOSSES

Tencent Holdings shares reversed losses of as much as 5 percent in early trade to be 1.1 percent at midday, shrugging off weaker-than-expected second quarter net profit that the Chinese internet giant blamed on higher marketing costs for its WeChat social messaging service.

For the year, Tencent was up 50 percent, far outperforming traditional Chinese cyclical stocks plagued by inefficiency and struggling with Beijing's move to cut overcapacity.

But other technology-related names whose earnings disappointed saw their share prices fall. Sunny Optical , which manufactures lens for cell phone cameras, dropped 3.3 percent after its gross profit margins disappointed despite posting net profits broadly in line with expectations.

Beijing SL Pharmaceutical dived 4.1 percent in Shenzhen, while Jiangsu Hengrui Medicine tumbled 4.4 percent in Shanghai after the official Xinhua news agency reported the start of a new three-month probe as China intensified its investigation into bribery in the pharmaceutical and medical services sector.