Hang Seng breaks through 20,000 on property rebound

HONG Kong’s benchmark Hang Seng Index climbed above 20,000 yesterday for the first time since the collapse of Lehman Brothers Holdings Inc, as a rebound in property prices helped push the index up 75 per cent since March.

Developers such as Sun Hung Kai Properties Ltd, the world’s largest by market value, helped spur the advance. Aluminum Corp of China Ltd and Bank of China Ltd climbed as China became the first of the major economies to recover from the global recession.

Citic Pacific Ltd surged after the biggest currency derivative losses by any Chinese company prompted a government bailout.

For Lehman, ‘people have pretty much put it behind’ them, said Tat Auyeung, a fund manager at Apex Capital Management in Hong Kong, which oversees more than US$400 million. ‘If we start seeing earnings upgrades, that will push the market even higher. That’s fundamentally the most important driver.’

Rallying stocks in Hong Kong reflect speculation global efforts to repair credit markets and revive economic growth will boost profits. The Hang Seng slumped 64 per cent from its October 2007 record to its low this year in March. It fell as much as 43 per cent following Lehman’s failure on Sept 15. China’s pledge to spend four trillion yuan (S$843 billion) to spur growth helped drive the advance.

Hong Kong has allocated HK$87.6 billion (S$16.3 billion), or about 5.2 per cent of gross domestic product, to stimulus and relief spending since 2008. The city, battling its worst recession in a decade, probably returned to growth in the second quarter of this year as the declines in exports moderated, Financial Secretary John Tsang said on July 6.

The rally drove the average valuation of companies in the Hang Seng to 17.5 times estimated earnings as at yesterday, up from 10.6 at the beginning of this year. The gauge’s 14-day relative strength index, which measures how rapidly prices have risen or fallen in that period, closed at 68.5 on Thursday, just below the 70 threshold some traders use as a signal to sell.

‘This is a liquidity-driven market,’ said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd in Hong Kong. ‘If liquidity continues to stay at this level, it still has a chance to go even higher. But still we may see some profit taking after 20,000. The market may want a breather.’

After breaking through the 20,000 level, the Hang Seng Index then fell as much as 0.5 per cent. It traded 0.3 per cent higher at 19,844.06 as of 10.56am local time. Sino Land Co, controlled by the family of billionaire Ng Teng Fong, and billionaire Cheng Yu-tung’s New World Development Co are the Hang Seng Index’s best performers in the rally since March through Thursday, as confidence in the city’s real-estate industry returned.

The value of residential units sold in June increased 26 per cent from the previous month to the highest value in a year.

Source: Business Times, 25 July 2009