By Hanny Wan and Darren Boey
July 24 (Bloomberg) -- Hong Kong’s benchmark Hang Seng Index climbed above 20,000 today for the first time since the collapse of Lehman Brothers Holdings Inc., as a rebound in property prices helped push the index up 75 percent 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 $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 percent from its October 2007 record to its low this year in March. It fell as much as 43 percent following Lehman’s failure on Sept. 15. China’s pledge to spend 4 trillion yuan ($586 billion) to spur growth helped drive the advance.
Hong Kong has allocated HK$87.6 billion ($11.3 billion), or about 5.2 percent 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.
Rising Valuations
The rally drove the average valuation of companies in the Hang Seng to 17.5 times estimated earnings as of 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 yesterday, 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 percent. It traded 0.3 percent higher at 19,844.06 as of 10:56 a.m. local time.
Best Performers
Sino Land Co. and New World Development Co. are the Hang Seng Index’s best performers in the rally since March through yesterday, as confidence in the city’s real-estate industry returned. Sino Land, controlled by the family of billionaire Ng Teng Fong, surged 164 percent in that time. Billionaire Cheng Yu-tung’s New World soared 162 percent.
The value of residential units sold in June increased 26 percent from the previous month to the highest value in a year, figures from the Land Registry show.
Citic Pacific gained 161 percent in the March rally through yesterday for the Hang Seng’s third-biggest advance. The stock fell to a record low on Oct. 27 as bets on the Australian dollar incurred about $2 billion of losses, forcing former Chairman Larry Yung to seek a bailout from parent Citic Group, controlled by China’s cabinet.
Citic Pacific shares are up 420 percent from its low as the bailout, the resignation of Yung and former Managing Director Henry Fan resigned in April, and a review of the company’s assets by new Chairman Chang Zhenming lured investors back.
“Some investors have been chasing the laggards this year,” said Steven Leung, Hong Kong-based director of institutional sales at UOB-Kay Hian Ltd. “Sentiment remains strong at this level.”
Chinese Growth
China-related companies have increased on optimism growth in the country’s economy, the world’s third largest, will boost company earnings. The Hang Seng China Enterprises Index, which tracks the so called H shares of 43 mainland companies, has jumped 80 percent from its low this year on March 2.
The Chinese economy grew 7.9 percent in the second quarter from a year earlier after expanding at the slowest pace in almost a decade in the previous three months, the statistics bureau said July 16.
“At the beginning of the year, no one believed that China could deliver 8 percent GDP,” said Apex’s Auyeung. “Now that’s what we see. Next year it’s going to be even stronger.”
Chalco, as Aluminum Corp., is known, climbed 121 percent since the market’s March trough. Bank of China, which reported better-than-expected first-quarter profit on April 28, climbed 75 percent.
The Hong Kong stock market may get a boost after the city’s banks yesterday agreed with monetary authorities to buy back notes linked to the failed Lehman Brothers Holdings Inc. The repurchase of the notes “should remove a major overhang” for lenders, JPMorgan Chase & Co. analysts wrote in a July 23 note.
“In the long term, say six to nine months, given all the liquidity, earnings, and GDP, the underlying factors should continue to push the market higher,” Apex Capital’s Auyeung said.
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net.
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