Dec 1 (Reuters) - Hong Kong shares jumped nearly 2 percent on Tuesday, their biggest one-day percentage gain in almost three weeks, as investors responded positively to news that the yuan would be granted global reserve currency status.
The Hang Seng index rose 1.8 percent, to 22,381.35, while the China Enterprises Index gained 1.6 percent, to 9,947.94 points.
The strong gains followed the International Monetary Fund’s decision to add the Chinese currency to its Special Drawing Rights (SDR) basket. Many traders struggled to explain why the long-expected result could still inject so much vitality into the market.
One theory is that yuan’s rising global status would make China assets more attractive to foreign investors, benefiting both stocks and bonds, according to Wu Kan, Shanghai-based head of equity trading at hedge fund Shanshan Finance.
Another theory is that yuan’s SDR status would help accelerate China’s financial deregulation, gradually narrowing the valuation gap between stocks listed in Hong Kong and the mainland.
The gap, as indicated by the Hang Seng China AH Premium Index, closed at 135, the lowest level in nearly a month, suggesting China stocks are on average 35 percent more expensive than Hong Kong peers.
All major sectors in Hong Kong rose, with real estate and telecommunications shares leading the gains.
Financial shares also advanced, as investors bet the yuan’s inclusion in the SDR basket would deepen the currency’s internationalisation, benefiting banks. (Reporting by Samuel Shen and Pete Sweeney)