April 26, 2012 / 5:20 AM / 6 years ago

Hong Kong shares gain as Unicom firms, China flat

(Update to midday)

* HSI up 0.5 pct, CSI300 flat

* China Unicom jumps after favourable Q1 earnings

* BYD, ZTE punished after earnings disappoint

* China Everbright surge after Bo’s brother resigns

By Clement Tan

HONG KONG, April 26 (Reuters) - Hong Kong shares rose on Thursday, helped by a 2.9 percent jump in China Unicom after it reported strong quarterly profit growth, as the ongoing earnings season drove major price moves in the market.

The U.S. Federal Reserve’s reiteration of their commitment to a pro-growth policy position also spurred gains in riskier sectors, with price movements seen partly exaggerated by weak bourse midday turnover that neared the year’s lows.

Mainland Chinese markets ended the morning session slightly weaker, with the CSI300 Index flat and the Shanghai Composite Index down 0.2 percent as A-share turnover in Shanghai hit its highest at midday since March 14.

The Hang Seng Index rose 0.5 percent, while the China Enterprises Index of the top mainland listings in Hong Kong gained 0.6 percent.

“Investors are still cautious and relatively defensively positioned. It’s still a macro-driven market and won’t be a good year for growth in Chinese companies generally,” said Francis Cheung, CLSA’s China-Hong Kong strategist.

“They will likely look to companies that reward reasonably good earnings and whose share prices are relatively cheap,” Cheung added.

On Thursday, China Unicom , the mainland’s second-largest mobile phone operator, rose 2.9 percent in Hong Kong and 0.5 percent in Shanghai after it reported late on Wednesday a surge in first-quarter profit as subscriber demand for data offset hefty handset subsidies paid to phone makers.

Credit Suisse and Citi analysts maintained their “buy” ratings on Unicom’s Hong Kong listing, expecting it to be a major beneficiary of 3G market growth in China, particularly from the third quarter this year.

China Unicom was the top performer among Hang Seng Index components in 2011, soaring 47 percent, but it is down almost 18 percent this year, lagging the benchmark and its sector rival, China Mobile, which is up almost 12 percent.

Unicom is currently trading at a 53.5 percent premium to its historical average, according to Thomson Reuters StarMine. By contrast, China Mobile is trading at a 10 percent discount to its historical average.

Unicom, however, has the best long-term earnings growth potential among sector peers, suggesting some investors could still choose to pay a premium for its profitability in a slowing growth environment in China.

EARNINGS DISAPPOINT

Quarterly earnings results also drove the major moves in other stocks. BYD Co Ltd , a Chinese carmaker backed by U.S. billionaire Warren Buffett, slumped 5.2 percent in Hong Kong and 3.4 percent in Shenzhen.

It posted a 90 percent slide in quarterly profit late on Wednesday, hit by a slowdown in the world’s largest car market and losses in its solar business.

China’s ZTE Corp , the world’s fifth-biggest telecommunications equipment maker, was also hurt by weaker-than-expected first-quarter profit following sluggish telecoms spending and price wars.

ZTE lost 1.7 percent in Hong Kong and 2.6 percent in Shenzhen. This year to date, its H-share listing is down 21 percent while its A-share listing is up 1.5 percent, both underperforming their respective markets.

China Everbright International Ltd soared 6.7 percent in midday volume that has exceeded its 30-day average after the brother of ousted Chongqing party leader Bo Xilai, the main figure in a growing Chinese political scandal, resigned as its vice chairman. (Editing by Ramya Venugopal)

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