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Nikkei Markets

Hong Kong shares jump as valuations pull in Chinese buyers

Country Garden and China Vanke rise after increase in August contracted sales

HONG KONG (Nikkei Markets) -- Hong Kong shares headed for their first gain in three days on Wednesday, paced by advances of index heavyweights, as cheaper valuations in the city's market lured mainland investors.

The Hang Seng Index added 1.2% to 25,830.19 by the midday break. Tencent Holdings advanced 1.8%, while financial companies AIA Group and HSBC Holdings rose 1.1% and 1.3%, respectively. The three blue chips contributed more than a third of the index's gains by points. Chinese property developer Country Garden Holdings added 2.9%, following a 49.5% jump in contracted sales for August.

Turnover on the stock exchange's main board was higher than usual for the time of day, at 42.49 billion Hong Kong dollars ($5.42 billion).

Chinese investors, through links connecting the Hong Kong market with mainland stock exchanges, were net buyers of the city's stocks by noon. In the mainland, the Shanghai Composite Index edged higher by 0.2%.

Wednesday's gains for the Hang Seng Index were "mostly about valuations," said Ivan Li, director of CSL Securities' investment research department, highlighting that the "news flow has become more negative."

Chi-man Wong, an analyst at China Galaxy International, noted that a high A-share premium to H-shares was likely the key reason for strong southbound inflows in August. The Hang Seng China AH Premium Index slipped 0.2% to 129.12, indicating Chinese shares listed in the mainland were roughly trading at a 29% premium to their dual-listed counterparts in Hong Kong.

The local equity benchmark, which slumped 7.4% last month, is currently trading at a price-to-earnings ratio of 10.05, while the Shanghai Composite Index is at 11.86. The Shanghai index fell 1.6% in August.

Tracy Chan, a research analyst at KGI Asia, said the gains were not "strange to see" after the Hang Seng Index shed more than 2,000 points last month.

Also helping sentiment was a private survey that showed services activity in China picked up last month. The Caixin/Markit services Purchasing Managers' Index coming in at 52.1. That was higher than July's 51.6 reading. A figure above 50 indicates expansion.

Markets in the rest of Asia were mixed. Investors continued to watch for news on when the U.S. and China might schedule their next round of trade talks. U.S. and Chinese officials are "struggling" to agree on the schedule for a planned meeting this month to continue trade talks, Bloomberg reported earlier this week, citing people familiar with the discussions. U.S. equity markets declined overnight, as investors returned after a long weekend to data showing factory activity in the world's largest economy had contracted in August.

Construction works company Century Group International Holdings surged 45.1% to HK$0.37 after the company said it plans to place up to 153.6 million shares at HK$0.222 apiece.

Mainland property developer China Vanke added 0.9% after reporting a 15.1% increase in contracted sales for last month.

Shimao Property Holdings advanced 1.8% after reporting a 38.9% jump in August contracted sales.

China Evergrande Group rose 0.2% following an 18.8% advance in August sales.

Future Land Development Holdings climbed 0.8%. The developer on Tuesday said August contracted sales rose 3.5% year-on-year.

-- Benny Kung

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