Hong Kong H-shares up on railway investment, telecoms off on tax pilot

Fri May 2, 2014 1:02am EDT

* HSI +0.5 pct, H-shares +0.6 pct; China markets shut

* Telecom stock fall on China pilot tax program

* China railway sector jumps on plan for more investment

* China Mengniu Dairy up on tighter milk import controls (Updates to midday)

By Alice Woodhouse

HONG KONG, May 2 (Reuters) - Chinese shares listed in Hong Kong rose on Friday, lifted by plans for increased investment in railway infrastructure.

Hong Kong's Hang Seng Index was also helped by confidence returning to the tech sector on Wall Street, though there were falls for telecom shares due to China's pilot programme on taxes.

By midday, the Hang Seng Index gained 0.5 percent at 22,253.31 points, which put it up 0.1 percent on the week.

The China Enterprises Index of the top Chinese listings in Hong Kong rose 0.6 percent, leaving it up 0.4 percent on the week.

Gains for the day came after China's National Bureau of Statistics said on Thursday the official Purchasing Managers Index rose to 50.4 in April from March's 50.3, one of the first indicators of how the economy started the second quarter.

China's market was closed on Friday for the Labour Day holiday and will reopen on Monday.

Shares in China's telecoms carriers fell after the country's finance ministry said on Wednesday carriers would be included in a trial value-added tax reform programme from June 1. The VAT trials are expected to hurt carriers' profits.

Jackson Wong, Tanrich Securities' vice-president for equity sales, said telecoms stocks were holding up well in face of the new tax following a rally in the sector this week as investors sought safe haven from falling tech shares.

Wednesday's announcement put a halt on an uptrend for telecom stocks and 'made investors realize they are still facing a lot of headwinds," Wong said.

Now, he predicted, telecom stocks "will go back to their old selves that are relatively safe but they lack a positive catalyst to go up a lot."

Fitch Ratings said the pilot programme will increase the overall tax burden for China Mobile Ltd and China Telecom Corp and will reduce EBITDA and cashflow for the firms over the next two to three years.

China Unicom (Hong Kong) Ltd, China Mobile Ltd and China Telecom Corp shares fell 4 percent, 2.1 percent and 2.3 percent respectively.

Chinese railway counters jumped in Hong Kong after Caixin magazine reported the country's 2014 railway investment would be increased to 800 billion yuan ($127.81 billion) from 720 billion yuan.

China Railway Group Ltd rose 7.8 percent while China Railway Construction Group gained 6.7 percent.

Milk powder maker China Mengniu Dairy Co Ltd rose 3 percent after Chinese state media reported the country would tighten quality controls on dairy imports. ($1 = 6.2593 Chinese Yuan) (Editing by Richard Borsuk)

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