Hong Kong stocks rose, completing the Hang Seng Index's biggest two-day gain in more than six years, after the Chinese government said it would let some individual investors buy the city's securities.
Hong Kong Exchanges & Clearing Ltd, which manages the local stock market, surged on expectations trading volumes would increase. China Life Insurance Co gained on speculation Chinese investors would favor the firm's Hong Kong-listed "H shares" over its more expensive mainland stock.
The Hang Seng rose 133.72, or 0.6 percent, to close at 21,729.35, having pared its gains in the afternoon on concern the benefits of China's new policy were being overestimated. It surged 6.6 percent in the past two days, the most since April 2001. The Hang Seng China Enterprises Index, which tracks 41 H shares, gained 2.9 percent to 12,308.75.
"Only time will tell how this policy will impact on asset prices," said Tim Leung, who helps manage US$1 billion at IG Investment Ltd in Hong Kong. "Everything has a starting point and I doubt very much that this will be the end of it. We have been overweight [on] H shares and this is one of the reasons why."
Hong Kong's stock market is benefiting from increased linkage to China's economy 10 years after the UK handed the territory back to the mainland. Shares of Chinese companies accounted for about 59 percent of the value of shares traded on Hong Kong's exchange this year through last month, up from 1997's 38 percent, the bourse's Web site shows.
The latest policy announcement will probably increase that total as it paves the way for China's 17 trillion yuan (US$2.2 trillion) in household savings to enter Hong Kong's stock market.
China's State Administration of Foreign Exchange said on Monday that Chinese nationals with a Bank of China Ltd account in Tianjin's Binhai economic zone could invest foreign currency in Hong Kong stocks in a pilot program. The regulator did not specify an investment maximum or say when the trial would start.
Hong Kong Exchanges, the manager of Hong Kong's stock market, surged HK$7.20 (US$0.91), or 6.2 percent, to HK$123.30. It climbed 16 percent the past two days, the most since July 2000.
The company will spend HK$78 million to increase the capacity of its trading systems in anticipation of more Chinese individuals investing in Hong Kong, chief executive Paul Chow (周文耀) told the South China Morning Post.
"This news should produce an upward revaluation of Hong Kong-listed China shares," said Jing Ulrich, chairman of China equities at JPMorgan Chase & Co.
"Many will see this as a green light to take advantage of cheaper valuations on offer for Chinese shares listed in Hong Kong," Jing said.
Twenty-three stocks on the 39-member Hang Seng Index rose, while 14 fell. August futures lost 0.2 percent to 21,600. Turnover was HK$116.8 billion (US$15 billion), 43 percent above the three-month daily average, and the highest since Aug. 1.