November 1, 2018 / 9:23 AM / 20 days ago

Hong Kong stocks higher as yuan firms, real estate in spotlight

* .HSI up 1.75 pct, HSCE up 1.39 pct

* Stronger yuan boosted Chinese shares in the city

* Property led the rise, but investors unsure if rally will last

By Noah Sin

HONG KONG, Nov 1 (Reuters) - The Hong Kong stock market gained grounds on Thursday on the back of a stronger yuan and policy support for the Chinese economy. Real estate companies lead the advance, but pressure remains on the sector as financing costs rise. ** At the close of trade, the Hang Seng index was up 1.75 percent at 25416. The Hang Seng China Enterprises index rose 1.39 percent to 10,279.32. ** The sub-index of the Hang Seng tracking energy shares rose 0.6 percent, the financial sector was 1.65 percent higher and . ** The IT sector rose 4.35 percent, led by gains in shares of Tencent Holdings, after the company’s founder sets out the company’s future plans in an open letter.

** The local market was led higher by its mainland counterpart, which recorded its third consecutive day of gains on Thursday, thanks to a slew of policy support announcements this week. ** But Hong Kong stocks bounced higher than China’s on Thursday thanks to a stronger yuan. The offshore yuan firmed to the stronger side of 6.95, having touched 6.98 in early Asia trading. ** “The renminbi exchange rate has a bigger impact in Hong Kong than in China, you can feel it here,” said Hong Kong-based Patrick Yiu, managing director at Hong Kong-based CASH Asset Management. “We use the Hong Kong dollar to buy Chinese stocks here. Their profits are in renminbi.”

** The currency’s recovery is particularly helpful for two sectors that rely on Chinese consumers, said Steven Leung, a Hong Kong-based director of sales at the brokerage UOB Kay Hian. ** “Most investors were worried about the performance of retail and gaming companies as the Chinese economy weakens and the renminbi is worth less,” he said. ** Real estate stocks were in demandr as the politburo, a top decision-making body for the China’s ruling Communist Party, announced policy support for the economy on Wednesday without the stressing the need to control property companies’ leverage, as it had previously done, said Leung.

** Chinese property stocks in Hong Kong gained. Hang Seng’s sub index for the proeprty sector rose 2.73 percent. Country Garden gained 9.18 percent, the most among companies in the Hang Seng. But Yiu questions long the rally will last.

** “If you look at the Evergrande bond issuance this week, the coupon is not cheap at all,” he said. “Sentiment is good today, but in the long run, with rising financing costs, it will be difficult for these companies.”

** Evergrande paid coupon as high as 13.75 percent this week for a five year note, sending chills among borrowers in Asia. ** Around the region, MSCI’s Asia ex-Japan stock index was firmer by 1.14 percent, while Japan’s Nikkei index closed down 1.06 percent. ** The top gainers among H-shares were China Vanke Co Ltd up 7.45 percent, followed by Haitong Securities Co Ltd , gaining 7.22 percent and China Railway Group Ltd , up by 5.86 percent. ** At close, China’s A-shares were trading at a premium of 21.67 percent over the Hong Kong-listed H-shares.

Reporting by Noah Sin

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