Hong Kong Stocks Post Longest Run of Monthly Gains Since 2007

(Bloomberg) -- Hong Kong’s benchmark equity index capped its longest stretch of monthly gains in a decade, as improving earnings and a stable Chinese economy helped it become Asia’s top performer this year.

The Hang Seng Index advanced 2.4 percent in August to notch an eighth month of increases. AAC Technologies Holdings Inc. was the best performer, rising 36 percent amid a flurry of analyst upgrades following its earnings, while Wharf Holdings Ltd. jumped 12 percent in August as it announced a spinoff plan. Tencent Holdings Ltd. was the biggest boost to the benchmark, advancing 5 percent during the month after posting the best revenue growth in seven years amid a global rally in technology stocks.

With a year-to-date gain of 27 percent, the Hang Seng Index is edging closer to surpassing the top of its bubble-driven peak two years ago. Yet there are signs the rally is different this time. Some 80 percent of companies have reported earnings growth in their semi-annual results so far, compared with around 56 percent in the same period two years ago and just 38 percent last year. Turnover on Hong Kong’s bourse is also far from previous euphoric levels.

“The market is actually trying to play catchup,” said Ken Wong, a Hong Kong-based fund manager with Eastspring Investments. “Over the past 10 years, prices really haven’t gone up that much. But earnings have gone up quite a bit more.”

Companies on Hong Kong’s benchmark are trading at about 12.3 times estimated earnings, a discount of more than 40 percent from a 2007 peak, according to data compiled by Bloomberg.

The rally faded slightly Thursday as the index fell 0.4 percent, with mainland banks leading the drop as investors took profits following their results. China’s factory gauge showed economic output was resilient in August, adding to signs growth is holding up.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Ryan Lovdahl, Will Davies