HONG KONG: Hong Kong shares headed for their highest level in more than four months as cheap valuations of Chinese companies listed in the city and expectations for U.S. tax cuts lured buyers. The Hang Seng Index rose 0.5% to 23,694.80 by the midday break amid improving volumes, with turnover on the exchange’s main board at nearly HK$54 billion ($6.9 billion). China Life Insurance rose 3% and Industrial & Commercial Bank of China (ICBC) advanced 0.8%, driving mainland companies. The Hang Seng China Enterprises Index or H-share index added 1.2%, near the highest level since November 2015, after climbing 4.6% last week. The day’s advances extend a rally in global risk assets after U.S. President Donald Trump last week promised to soon unveil proposals lowering taxes for businesses and individuals. Cheaper valuations of dual-listed Chinese companies in the city versus the mainland aided the performance of local equities, with turnover of Hong Kong stocks via links with the Shanghai and Shenzhen bourses topping HK$4.4 billion by midday, according to exchange data.
“Global equity markets remain buoyant on Trump’s tax plans and the increased fund flow into the relatively cheap H-shares is what is continuing to drive Hong markets to new highs,” said Ben Kwong, executive director at KGI Asia. “I think investment flows will continue to remain positive till the end of this quarter and equities are in for what I would call a ‘honeymoon period.'” The Nikkei Asia300 Index added 0.3% to 1,116.91. The H-share index currently trades at 8.7 times its earnings, compared with a multiple of 14.6 for the Shanghai Composite Index, which advanced 0.6% by the 11:30 a.m. break. The Hang Seng China AH Premium Index, which measures the premium for yuan-denominated shares of mainland companies over their Hong Kong-listed prices, slipped 0.6%.
The offshore yuan traded in Hong Kong slid 0.3% to 6.8822 versus the dollar. Sentiment toward local stocks was also helped after President Trump last week agreed to respect the “One-China policy,” easing worries about relations between the world’s two largest economies. He had earlier said that the U.S. wasn’t necessarily bound by the policy, which Beijing views as non-negotiable. “Of course, this is positive for investor confidence, but I think right now the story is about the increased flows into equities on strong risk appetite,” Kwong said. PetroChina rose 1% and China Petroleum & Chemical (Sinopec) added 0.8% after Brent crude climbed 1.9% on Friday.