Hong Kong shares rose 1.9 percent on Monday, lifted by strength in Chinese stocks, particularly from buying of the two consumer staple names to be added to the Hang Seng Index in December. But gains came in turnover that was significantly weaker than last Thursday, the day the Hang Seng Index lost more than 1000 points, suggesting that investors remained cautious ahead of an Italian bond auction later on Monday.
US economic data and corporate earnings report due out this week could also keep the markets volatile, particularly exporters dependent on the American market. One of them, Li & Fung Ltd, gained 6 percent on Monday.
Much of Monday's gain "is short covering and people catching up after the steep losses last week," said Jackson Wong, vice-president for equity sales at Tanrich Securities. Wong added that strength in Chinese stocks could limit losses in Hong Kong, with investors looking to position themselves for a rally in 2012 after the China Enterprises Index recorded its worst quarter in 13 years last quarter.
The China Enterprises Index gained 2.8 percent on Monday. The Hang Seng's 1.9 percent rise left that index at 19,508.18 points, a retracement of about 50 percent of its plunge on November 10. Want Want China Holdings Ltd surged more than 6 percent, on volume more than six times its 30-day average, after the manager of the Hang Seng Index announced late on Friday that food and beverage company would be included in the benchmark from December 5.
Also getting added to the index is instant noodle and beverage maker Tingyi (Cayman Islands) Holdings Corp, which gained 4.3 percent. Index-based funds naturally bought both stocks. "Domestic consumption and healthcare will be the impetus for the next phase of economic expansion in China, particularly in the eastern cities," Rui Yang, the chief investment officer of Blend Group, Bosera Asset Management, said at the launch of its China balanced fund, to be distributed by Citigroup.
In a note to clients dated November 11, HSBC analysts recommended clients go long on these two stocks when markets close on November 23 and exit the trade at market close on December 2. At midday on Monday, Tingyi reported that third-quarter profit fell 34.9 percent from a year earlier amid slower sales in a high inflation environment, although the result was better than analysts had forecast.
The Shanghai Composite Index closed up 1.9 percent at 2,528.7 points, as strength in auto shares led the benchmark to a 2-1/2-month high in weak A-share turnover. BYD Co Ltd led gains in auto stocks after Chinese local media reported Beijing is considering relaxing restrictions on purchases of clean-energy vehicles to encourage drivers to switch to green cars.
BYD, backed by US billionaire Warren Buffett, gained the maximum-allowed 10 percent in strong volume in Shenzhen. In Hong Kong, it surged more than 25 percent on volume that was more than triple its 30-day average. Still, the stocks is down almost 50 percent in 2011. PetroChina Co Ltd and China Petroleum and Chemical Corp (Sinopec) were among Shanghai's top three boosts, up 0.9 and 1.2 percent respectively, partly on higher global oil prices.