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Nikkei Markets

Hong Kong shares end year up after best December since 2000

Drug and smartphone parts makers lead annual advances, while telecoms underperform

HONG KONG (Nikkei Markets) -- Hong Kong shares ended 2019 with an annual gain, with a de-escalation in the Sino-American trade war giving the Hang Seng Index its best December since 2000 after lingering concerns over the spat dragged on the equity benchmark for most of the year.

The 50-stock index fell 0.5% to 28,189.75 on Tuesday as markets closed at noon for New Year's Eve. The gauge ended the year 9.1% higher, aided by a 7% rally in December, after the U.S. and China agreed to a phase one trade agreement. While a formal pact has yet to be signed, American officials have agreed to roll back some tariffs on Chinese products, while Beijing has said it will buy more American agricultural goods, fueling optimism in global markets that have been on edge over the issue for about 18 months.

Shares of Sino Biopharmaceutical more than doubled, while smartphone parts maker Sunny Optical Technology Group surged 92.7% this year, ranking as the best performers on the index amid optimism over their earnings prospects. China Mobile ranked among the worst performers amid concerns about the impact of tariff cuts and also worries that capital expenditure would rise as it rolls out 5G commercial services. In Tuesday's trading, Sino Biopharm gained 0.2%, Sunny Optical lost 0.6% and China Mobile gave up 0.5%.

Hong Kong stocks began the early months of 2019 on an upbeat note before pulling back sharply in May as expectations over a trade deal failed to materialize. Summer brought fresh challenges in the form of social unrest as Hong Kongers began mass protests against an extradition bill. While the bill has since been withdrawn, demonstrations have continued, morphing into a broader movement for greater democratic rights. As the protests turned violent at times amid clashes with the police, retail sales and inbound tourism have been hurt, helping send the Hong Kong economy into a technical recession.

"It has been a very challenging year for investors," said Andrew Sullivan, a director at Pearl Bridge Partners. But "with the trade deal provisionally agreed, the short-term outlook is probably good."

Despite ending the year on a high note, the Hang Seng Index has trailed many regional peers, including India's Sensex, Taiwan's Taiex and Japan's Nikkei 225 Average. Its advance also pales in comparison with equities traded in the mainland, where the Shanghai Composite is on course for a 22% annual gain.

The Shanghai gauge was little changed by the midday break on Tuesday, while the yuan traded onshore gained 0.2% to 6.9758 against the U.S. dollar. Mainland equities have recently been supported by expectations for a selectively accommodative monetary policy stance by Beijing. The People's Bank of China, on its part, adopted a new loan-pricing mechanism earlier this year that could effectively lower the cost of borrowing.

Among Hong Kong market heavyweights, internet services major Tencent Holdings advanced about 20%, U.K.-based lender HSBC Holdings lost 6.3% and Chinese insurer Ping An Insurance Group climbed 32.8% in 2019.

Property developer Sino Land and conglomerate Swire Pacific shed 15.7% and 12.4%, respectively, amid local protests in the city.

Hong Kong Exchanges & Clearing was among other noteworthy stocks on the Hang Seng Index, rising 11.6%. The market operator had in September made an unsolicited $37 billion bid to acquire London Stock Exchange Group that was rebuffed. Still, HKEX managed to retain its crown in 2019 as the world's largest marketplace for new listings by funds raised, thanks in part to a secondary listing in the city by Chinese e-commerce giant Alibaba Group Holding.

In Tuesday's trading, Tencent fell 2%, HSBC slipped 0.1%, Ping An lost 0.5% and HKEX declined 1.3%. Sino Land advanced 0.5% and Swire Pacific gave up 0.8%, while Alibaba's shares retreated 1.6%.

Alibaba's secondary listing following its $13 billion offering is expected by several participants to pave the way for similar flotations in Hong Kong by other U.S.-listed Chinese technology companies. Market participants also expect attractive valuations to lure investors to Hong Kong equities next year.

"Basically, we have a splendid primary market, and a solid and steady secondary market," said Hao Hong, head of research and chief strategist at Bocom International. "It is really cheap enough."

The Hang Seng Index currently trades at around 11.4 times its reported earnings, compared with 23.2 times for the S&P 500 Index and a multiple of 12.2 times for the Shanghai Composite Index.

The year ended with two new listings on the Hong Kong Stock Exchange's main board on Tuesday.

Shares of Newborn Town soared 93.5% to HK$3.25 after the mobile app developer raised 228.5 million Hong Kong dollars ($29.3 million) in gross proceeds from an initial public offering. Meanwhile, Taizhou Water Group, also debuting on Tuesday, ended flat at HK$4.22 after the company's HK$211 million IPO.

-- Benny Kung

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