HONG KONG, April 1 (Reuters) - Hong Kong stocks rose on Wednesday after a better-than-expected Chinese factory activity survey, with start-up shares surging after China allowed insurers to invest in the city's Growth Enterprise Market (GEM).
The official Chinese factory survey showed activity expanded in March for the first time in three months, although growth was marginal and orders remained weak, reinforcing calls for further policy easing by the government to bolster a slowing economy.
GEM shot up more than 4 percent, playing catch-up with its mainland counterpart, the ChiNext board, after China relaxed overseas investment rules for insurers and allowed them to invest in GEM.
UBS strategist Lu Wenjie said that with China's small-cap stocks 10 times more expensive than their Hong Kong-listed peers, and Beijing recently encouraging mainland investors to enter the Hong Kong market, the valuation gap between the two markets would narrow and eventually disappear.
"The current huge valuation gap and the excessive liquidity in mainland funds push interest towards Hong Kong stocks," Lu said. "We expect the A-H valuation gap to converge to zero toward the end of this year."
H shares are mainland companies listed in Hong Kong.
The Hang Seng index rose 0.7 percent, to 25,082.75, while the China Enterprises Index gained 1.6 percent to 12,537.28.
Among the most actively traded stocks on Hong Kong's main board were Ping Shan Tea, down 13.3 percent to HK$0.05, Shanghai Zendai, up 24.0 percent to HK$0.31, and SMIC, up 5.3 percent to HK$0.79.
Total trading volume of companies included in the HSI index was 1.8 billion shares. (Editing by Alan Raybould)