Traders work on the trading floor of the stock exchange in Hong Kong on Feb 3, 2016. (ANTHONY WALLACE / AFP)
HONG KONG - The Hong Kong stock market extended its gains to reach a 10-year high on Friday - on the back of strong fundamentals and the central bank’s recent rate cut.
Despite the nation’s week-long national holiday when mainland stock markets were closed, the H-share market was on course to its fourth straight day of gains with a grand opening of 28,626.41 on Friday - the highest since December 2007.
The index stood at 28,458.04 at the close of trading - up 78.86 points. This was an increase of 0.28 percent.
The rally followed the People's Bank of China’s (PBOC) latest policy announcement on Sept 30. The bank said it would reduce the amount of cash lenders must hold as reserves from 2018. The size of the reduction will be linked to the flow of funds to areas of the economy where credit is limited. This is intended to help startups, small businesses and farmers to obtain credit.
As the housing market in Hong Kong was on a high plateau, it is legitimate to see money flowing into the stock market
Edmond Hui, Chief Executive Officer of Bright Smart Security
The market anticipates that billions of dollars in liquidity will be released as a result of this.
Edmond Hui, Chief Executive Officer of Bright Smart Security, said: “Despite the week-long vacation, the strong signal that PBOC releases more liquidity, the market’s view on the impact of US Fed’s reduction in its balance sheet as being limited, have all boosted sentiment in the local stock market.
“As the housing market in Hong Kong was on a high plateau, it is legitimate to see money flowing into the stock market,” added Hui.
ZhongAn Online, Chinese mainland’s first online-only insurer, rose by 14 percent. The company only started trading last Thursday, but ZhongAn has seen its stock price rise from HK$65.2 on launch day to HK$91.35 by the end of trade on Friday.
Carmakers and real estate developers rose across the board, Geely Auto, the biggest non-State-owned carmaker in the mainland, increased 5.4 per cent. Electric car maker BYD rose 2.2 per cent, having gained 83 percent since a month ago.
Leading real estate developer China Sunac climbed to a three year high of HK$42.35 by midday, from HK$25.9 a month ago. Its major domestic rival, China Evergrande also saw its stock price rise from some HK$5 per share at the beginning of the year to HK$31.55 by Friday afternoon.
Despite a flurry of regulations introduced by the mainland government to curb very high housing prices, Hui believes the high price of real state sector can still be supported.
Sunac, for example, boasted a land bank of 101 million square meters across eight regions. This includes Beijing, Shanghai, North China, Southwest China, Southeast China, Central China, Guangzhou-Shenzhen and Hainan.
Massive land buying years ago, which came at lower prices, had significantly brought down costs. This serves as essential support for leading real estate developers like Sunac -despite sluggish sales, Hui noted.
Overall, the market is optimistic about the future, he says.
“Unlike 2015, when the whole market was pushed up to historic levels of irrational investment before a panic sell-off, this year the H-share market is backed by strong fundamentals, a favorable economic environment both at domestic and international levels. The rally was taking turns from the internet, to the car to the real estate sectors.
“Most of the money goes to leading companies and if you look at it, many of smaller cap-sized stocks are still not involved in the rally,” Hui said.
He predicted that Hang Seng Index would hit 30,000 at the end of year, or to break the all-time high of 31638.22 in October 2007 - if fuelled by stronger fundamentals.
A bullish stock market has greatly benefited local securities firms, Hui disclosed that both new customers and transaction volumes in Bright Smart had increased from 30 to 50 percent annually so far.
He predicted that stock exchange and security firms would benefit directly from the bull market.
Despite the fact that total turnover of the Hong Kong Stock Exchange has almost doubled, from HK$50 million at the beginning of the year to HK$86 million as of Oct 4, the stock price of Hong Kong Exchanges and Clearing Ltd (HKEX) has barely moved.
HKEX was trading at HK$216.8 as of the end of trading day this Friday, the price stood at HK$208.20 the same day one year earlier.
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