Hong Kong - China’s stocks rose, led by energy producers, as the nation’s financial markets reopened after week-long holidays.
A gauge of property developers tumbled after a number of cities imposed curbs to cool surging home prices, while the yuan slumped the most since June.
The Shanghai Composite Index added 1.2% as of 08:14. China Oilfield Services headed for its highest close since August and China Petroleum & Chemical rallied to a one-month high.
A gauge of Chinese stocks in Hong Kong climbed 3.6% last week, while New York crude jumped 3.3%. Property developers struck a more discordant note, with Poly Real Estate sinking more than 3%. The yuan slid 0.4% in Shanghai. Hong Kong’s equity market is closed for a holiday.
Shanghai became the latest city to impose new measures to curb a surge in property prices that some analysts compare to last year’s stocks bubble. Investors remain downbeat on domestic equities as prospects for monetary easing fade and concerns persist about a weakening yuan, according to a Bloomberg poll.
While the Hang Seng China Enterprises Index has climbed 2.7% this year, the Shanghai Composite Index is still down 14%.
“With H-shares up last week, mainland shares are catching up,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia. “The real estate sector could be a drag, with the government desperately trying to cool down speculation, at the moment with no avail.”
The Shanghai Composite Index rose to 3 040.97, while the ChiNext index of small-company shares advanced 2.5%, headed for its biggest gain since August 15.
Energy companies surged after oil futures last week extended their rally. China Oilfield jumped 4.5% and China Petroleum & Chemical, better known as Sinopec, gained 1.7%. Oil prices have climbed since the Organization of Petroleum Exporting Countries agreed September 28 to cut production for the first time in eight years. Crude futures fell 0.9% on Monday.
Baoshan Iron & Steel surged 10% in Shanghai as shares resumed trading for the first time since June. The company will acquire Wuhan Iron & Steel in an all-share deal that is China’s biggest-ever steel merger. Wuhan Steel also jumped by the daily 10% limit.
A Shanghai measure of property companies tumbled the most in a month. Poly Real Estate retreated to a two-month low, while Future Land plunged 8%.
Shanghai announced new steps including increasing land supply and forbidding price increases in new home pre-sales without approval. Local governments in at least nine other mainland cities tightened rules for home purchases over the week-long holidays in a bid to damp resurgent demand and rein in excessive speculation.
Deutsche Bank said last month it sees “clear sign of a bubble” in property - one that will end in a major correction in two years’ time, while JPMorgan Asset Management said the frenzy resembles last year’s manic trading in equities - which ended with a $5trn rout.
HSBC prefers H shares over their Shanghai counterparts, saying stocks in Hong Kong are attractively valued and overseas investors are “significantly” underweight them. The bank has a neutral rating on mainland equities, citing sales by insiders and a lack of interest by individual investors.
Even after the outperformance by Hong Kong-listed equities, mainland shares are still twice as expensive. The Shanghai Composite trades at 17.7 times reported earnings, versus the Hang Seng China Enterprises’ 8.5 multiple. A gauge measuring the premium of A shares over H fell last week to the lowest level since December 2014.
A depreciating currency has also limited gains by Shanghai shares. Mainland flows into Hong Kong equities swelled to a record last month, partly as investors sought a hedge against yuan weakness.
“Even with a recent narrowing, valuation is still expensive for the mainland,” said Yen Chiu, a Hong Kong-based trader at China Securities International Finance. “This year, I am definitely more optimistic about Hong Kong than A shares. For any dramatic change in the mainland’s stock markets, we need to see if turnover can pick up first.”