People walk past a display of the Hang Seng Index (HSI) closing figures on Wednesday. The HSI surged to a 19-month high on Wednesday as investors celebrated Tuesday's US fiscal cliff deal. Antony Dickson / AFP

Stock index reaches 19-month high; views mixed on future market trend

Hong Kong shares kicked off the first session of the 2013 new year by closing at a 19-month high, as investors cheered the passage of a bill in the United States Congress that averted the fiscal cliff crisis and eased worry of a recession in the world's largest economy.

The Hang Seng Index (HSI) closed up 655 points, nearly 2.9 percent to 23,312 points on Wednesday, its highest since June 2011. Bourse turnover was at its best since Dec 18 as Wednesday's turnover amounted to HK$82.4 billion. The China Enterprises Index (CEI) of the top mainland company listings in Hong Kong ended up 4 percent to 11,897 points in its best daily gain in a year.

Counters such as growth-sensitive mainland metal producers and sports brands that were among the biggest laggards in 2012 were among the biggest percentage gainers on the day. Citic Pacific surged 11.4 percent, while Li Ning soared 11.9 percent and ANTA Sports jumped 8 percent, all in strong volumes.

Mainland financial stocks were among the biggest index boosts after official manufacturing data on Tuesday held steady in December, matching November's seven-month high. China Life Insurance Co, the world's largest insurer by market value, added 6.7 percent. Industrial & Commercial Bank of China Ltd, the nation's largest lender, rose 3.6 percent.

Macao gaming shares extended gains after data at midday showed gambling revenue in Macao hit a record high in December. Sands China jumped 5.3 percent, while Wynn Macau rose 2.8 percent.

"(In the) short term the market sentiment will remain quite positive because investors believe the fiscal cliff can be avoided," said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd in Hong Kong.

The US House of Representatives passed legislation that breaks a year long impasse over how to head off $600 billion in tax increases and spending cuts set to begin taking effect in January 2013.

"The China PMI of course is another stimulus for the market. Those major gainers today are the mainland-related stocks. Investors are expecting continued improvement of the mainland economy to further boost confidence on A-shares," KGI's Kwong reckoned.

The China Purchasing Managers' Index was 50.6 in December, the National Bureau of Statistics and China Federation of Logistics and Purchasing said. That compares with the 51.0 median estimate in a Bloomberg News survey of 27 analysts and 50.6 in November. A reading above 50 indicates expansion.

"Fuelled by the capital inflows and the possible rebound of the mainland A-share market, the Hong Kong share market should be well supported at the current market level," AMTD Securities Business Division General Manager Kenny Tang told China Daily.

However, Castor Pang, Head of Research at Core Pacific-Yamaichi, begged to differ. "The market is too optimistic toward the fiscal cliff issue. If the financial market realizes the fiscal cliff issue has not (been) resolved as anticipated, the market may exert downward correction pressures," Pang told China Daily.

"The cyclical rebound of the local CEI should extend into the first half of 2013, depending on how vigorously the central government will introduce the economic reforms," said Catherine Cheung, Head of Investment Strategy and Research at Citibank Global Consumer Group. "We cannot rule out the local share market may exhibit downward correction."

CCB International Securities, in its 2013 market outlook report, said that the rising liquidity and falling equity risk premium have been the principal drivers of mainland's recent stock market rally. Interest rate sensitivity, a cyclical earnings recovery and future government policies are the three investment themes that investors can ride on.

Hong Kong's benchmark index gained 23 percent in 2012, its biggest annual increase since 2009, amid signs mainland's economy is improving and as central banks around the globe added stimulus to boost growth. Shares on the measure traded at 11.9 times average estimated earnings compared with 13.6 times for the Standard & Poor's 500 Index and 12.7 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Bloomberg and Reuters contributed to this story

oswald@chinadailyhk.com

(HK Edition 01/03/2013 page2)