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HK's Chinese stocks get a boost from yuan shift

One month after China revalued its currency, hopes for further appreciation of the yuan remain strong, attracting inflows of "hot money" into Hong Kong and pushing up the territory's Chinese stocks.

Hong Kong assets are favoured by speculators who regard the local currency as a proxy for betting on a gain of the yuan.

Although the Hong Kong Monetary Authority had modified the local peg slightly in an effort to curb speculative fund inflows, it has been unable to fend off speculators.

Better known as H shares, China enterprise stocks in Hong Kong have benefited from China's move, outperforming other sectors despite surging oil prices and concerns over rising interest rates that have impacted the benchmark Hang Seng Index.

The Hang Seng China Enterprises Index, which tracks 40 Chinese companies, closed at an eight-year high last Monday up by 1.1 percent at 5,539.39 on the day.

The index has risen by 10 percent in the past three months as speculation on a yuan appreciation drove the market higher. The Hang Seng Index rose 9.82 percent over the same period.

"The speculation of a further yuan speculation was good for the H shares. A lot of funds have come into Hong Kong," DBS Vickers (Hong Kong) director Peter Lai said.

On July 21, Beijing bowed to intense pressure from trading partners and revalued its currency by 2.1 percent. It also scrapped the yuan's 11-year-old peg to the US dollar in favor of a trade-weighted basket of currencies.

The yuan ended the first month of trade yesterday at 8.1047 to the US dollar, a 0.065 percent change compared to the new level of 8.11.

As much as the currency speculation has boosted China-related stocks, soaring oil prices have also played a major part in helping extend the gains in the H share index.

Ben Kwong, head of research at KGI Asia, said surging crude oil prices have pushed up some index heavyweights like CNOOC (中國海洋石油) and China's largest oil firm, PetroChina (中石油).

"They were leading the gains in the index," he said, although they succumbed to profit taking later in the week, in line with the rest of the market.
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