HK stocks defy protests to post world’s best gain

HONG KONG — Hong Kong stocks are beating every other developed market in the world this month as lower valuations shelter shares from a global sell-off and the city’s worst political unrest since the 1960s.

The MSCI Hong Kong Index rallied 3.1 per cent this month to yesterday, the most among 23 developed markets tracked by MSCI Inc and one of only two to gain. The measure today erased its loss since the police fired tear gas at pro-democracy demonstrators on Sept 28, rising 0.9 per cent, compared with a 3.2 per cent slump by the MSCI World Index in the same period.

“Hong Kong as a whole has held up pretty well despite what’s going on,” said Mr Nicholas Yeo, a money manager at Aberdeen Asset Management, which oversees US$550 billion (S$699 billion) and has not changed its holdings because of the protests. “After the first few days, people are becoming more rational and more pragmatic. We haven’t come to a stage where this means it’s the end of Hong Kong.”

With the benchmark Hang Seng Index trading at 10 times earnings yesterday, the lowest multiple among the world’s major developed markets, Bocom International Holdings said the impact of the protests is already reflected in equity prices. RS Investment Management sees catalysts for Hong Kong stocks in a trading link with Shanghai and prospects for Chinese stimulus.

The Hang Seng Index rose 1.4 per cent to 23,403.97 at the close today, its steepest gain in seven weeks, while the MSCI Hong Kong Index added 1.4 per cent.

Among 53 developed and emerging country MSCI indexes, only a measure of equities in Turkey rallied more this month through yesterday than the Hong Kong gauge, data compiled by Bloomberg showed. Casino operators Sands China and Wynn Macau led gains, surging at least 9.7 per cent.

While the Hang Seng Index plunged 3.2 per cent over two days after the police used tear gas on crowds last month, shares stabilised as the size of the protest sites shrank and investors weighed the impact on the city’s listed firms.

Firms that get a majority of their sales from Hong Kong make up about 13 per cent of the Hang Seng Index, while those that rely on China make up at least 54 per cent, data compiled by Bloomberg showed. Li & Fung, the wholesaler that gets more than half its revenue from the US, rallied 5.8 per cent this month through yesterday.

Hong Kong Chief Secretary Carrie Lam and four other government officials held discussions yesterday with five student protest leaders in an attempt to resolve the biggest challenge to China’s sovereignty over Hong Kong since the end of colonial rule in 1997.

“We’ve already seen the larger negative impact from the protests already taking place and now the scale has been more manageable,” said Mr Tony Chu, a money manager for RS Investment, which oversees about US$22.3 billion and holds more Hong Kong stocks than the benchmarks it tracks. The medium-to-longer-term outlook looks positive, he added.

Investors are hoping for more economic stimulus as Communist Party leaders meet this week, said Ms Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group.

China is planning the injection of about 200 billion yuan (S$41.4 billion) into some national and regional lenders, a government official familiar with the matter said last week, in its latest effort to shore up slowing growth. Gross domestic product rose 7.3 per cent in the previous quarter, the slowest pace since 2009, a report showed yesterday. The central bank provided 500 billion yuan of liquidity to China’s five biggest banks last month and the nation began easing property curbs in some cities to support slumping prices.

Retailers have suffered amid the demonstrations, with shares of jeweller Chow Sang Sang Holdings International sliding 4.8 per cent through yesterday. Cathay Pacific Airways lost 5 per cent. “In the short term, there may be some rebound because the strategy of buying whenever there is a crisis worked very well in the past 10 years in Asia, so people tend to do that,” said Mr Eng Teck Tan, Singapore-based senior portfolio manager for equities at Nikko Asset Management, which manages US$168 billion. “Hong Kong from a longer-term perspective faces a lot of challenges.” BLOOMBERG