Notes From Hong Kong: Shanghai Cautious Before the Holidays

Includes: EWH, FXI, PGJ
by: L. Desjardins

Despite a disappointing land auction on Wednesday, Hong Kong property stocks kept their upward momentum, gaining 3% on the week, again the best sector in the Hang Seng Index. The introduction of new measures to cool the mainland property market were even received positively by Hong Kong investors, seeing these measures as less stringent than expected.

Chinese investors are not as optimistic. In the mind of many investors the announcement appears to confirm that other measures will follow. The new measures, announced Monday ban companies that failed to develop land more than a year after winning sites via auctions from bidding for more land. On Wednesday the Chinese government announced that it will speed up the introduction of a trial property tax in some cities and then expand the levy to the whole country to curb rising real-estate prices. Chinese investors remained nervous since the Shanghai exchange will be closed until Friday.

INDICES 1 week 4 weeks YTD
Hang Seng Index 1.1% 6.6% 2.2%
HS China Enterprises 1.5% 5.4% -3.0%
FTSE/Xinhua A50 1.9% -1.4% -25.2%
Shanghai Composite 2.5% 0.0% -19.0%
CSI 300 2.7% 0.5% -17.6%
EWH 2.0% 11.6% 14.1%
FXI 0.6% 5.9% -0.1%
PGJ 2.3% 8.9% 6.1%

The land auction in Hong Kong on Wednesday did not go as expected with only one of the two lots to be sold attracting bids.

Positive news regarding manufacturing activities failed to boost confidence. China's manufacturing sector is improving again according to the latest PMI figures and many analysts forecast that the upswing in manufacturing activities will last several months as the central government push ahead with efforts to complete stimulus projects.

SECTORS – CHINA 1 week 4 weeks YTD
CSI300 Energy 4.2% -0.8% -29.5%
CSI300 Materials 7.6% 7.4% -13.0%
CSI300 Industrials 2.3% 0.4% -10.2%
CSI300 Cons. Discretionary 1.2% -0.4% -5.6%
CSI300 Cons. Staples 3.2% 6.4% 6.9%
CSI300 Healthcare 2.3% 8.3% 20.1%
CSI300 Financials 1.6% -3.3% -28.7%
CSI300 Technology 1.7% 3.2% 14.9%
CSI300 Telecom -3.0% -2.1% -24.0%
CSI300 Utilities 0.3% -0.5% -18.7%
SECTORS – HONG KONG 1 week 4 weeks YTD
HS Financials -0.2% 4.4% -4.8%
HS Utilities -0.4% 2.7% 13.4%
HS Property 3.0% 13.6% 10.8%
HS Commerce & Industry 2.2% 7.9% 8.0%

FTSE Xinhua A50 is a market capitalization weighted index comprising the 50 largest “A” (domestic) shares listed in China. In Hong Kong the ETF 2823:HK tracks the index; in the US, FXI tracks a sister index including only the 25 largest mainland companies listed in Hong Kong. The Hang Seng China Enterprises Index covers 40 “H” shares issued by mainland companies listed in Hong Kong. In Hong Kong the ETF 2828:HK tracks the index. The Hang Seng Index currently covers the 43 largest Hong Kong listed companies by capitalization. These HK listed companies include a number of mainland Chinese companies. In Hong Kong the ETF 2800:HK tracks the index. In the US, EWH tracks the MSCI Hong Kong Index which is substantially different from the Hang Seng Index.

Disclosure: Long FT/Xinhua A 50 and CSI300