Hong Kong Stocks Rise to One-Year High on Flood of Mainland Cash

(Bloomberg) -- Hong Kong shares rose to their highest level since August last year as financial companies rallied and mainland Chinese investors extended a buying spree.

The Hang Seng Index added 0.8 percent, paring an advance of almost 2 percent. China Life Insurance Co. and Hong Kong Exchanges & Clearing Ltd. paced gains after mainland regulators said insurers will be allowed to invest in the city’s equities through an exchange trading link with Shanghai. Galaxy Entertainment Group Ltd. led a charge by casino companies, while the Hang Seng China Enterprises Index climbed to the highest since November.

Chinese investors’ net buying of equities in the city through the link rose to 6.1 billion yuan ($913 million) on Friday, the most since April last year, exchange data show. Insurers are allowed to invest up to 15 percent of their assets in overseas markets including Hong Kong, which they can currently do through a different program. The Hang Seng Index has rallied 10 percent this year, compared with a 13 percent drop for the Shanghai Composite Index.

“The size of China’s insurance industry is pretty big, so allowing them to invest in Hong Kong stocks will provide lots of liquidity to the market, though the process may be gradual,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai. “The stimulating effect will last for a while.”

The Hang Seng Index closed at 24,099.7 in Hong Kong, taking its gains for the week to 3.6 percent. The Hang Seng China Enterprises Index ended 0.5 percent higher, after rising more than 2 percent. The Shanghai Composite fell 0.6 percent, moving less than 1 percent on a closing basis for the 19th day in a row. Ninety percent of the Hang Seng China gauge’s members traded above their 200-day moving average on Wednesday, the most since August 2014.

China Life gained 4.1 percent to climb to an eight-month high, while New China Life Insurance Co. advanced 1.8 percent and China Pacific Insurance Group Co. added 1.3 percent. Hong Kong Exchanges & Clearing jumped 5.5 percent, the most since March.

The plan to allow Chinese insurers to buy Hong Kong shares comes less than a month after officials dropped an overall quota for mainland investors to buy stocks in the city and approved the opening of a second link via Shenzhen, while retaining daily limits.

“This adds more fuel to the recent buying spree,” said Ben Kwong, Hong Kong-based director at KGI Asia Ltd. “Since the announcement of the Shenzhen stock connect, people are expecting more Chinese funds to come to Hong Kong to diversify their risks and assets."

Premium Income

Chinese insurers’ premium income expanded 37 percent from a year earlier to 1.88 trillion yuan in the first half of this year, according to data from the CIRC, as the companies boosted sales of policies amid falling interest rates. Their combined profits slumped 54.1 percent in the period, largely due to stock market declines and higher expenses, the regulator said in July.

“Insurers may not fully utilize the 15 percent overseas investment cap in the near term (especially all in equities), given the likely increase in volatility and potentially higher capital requirement,” Goldman Sachs Group Inc. analyst Mancy Sun wrote in a note.

Galaxy Entertainment surged 1.7 percent, Sands China Ltd. strengthened 2 percent and MGM China Holdings Ltd. jumped 2.2 percent. Deutsche Bank AG raised its ratings on Sands China and MGM China to buy from hold.

China’s factory-gate deflation eased for an eighth straight month with producer-price index falling 0.8 percent in August from a year earlier, the statistics bureau said on Friday. The consumer-price index rose 1.3 percent, the slowest in almost a year, it said.

--With assistance from Kana Nishizawa To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Robin Ganguly, Phani Varahabhotla

With assistance from Zhang Shidong