China H Shares Advance Most in Week on Improving Factory Indexes

(Bloomberg) -- Chinese stocks in Hong Kong gained the most since October 24 after two manufacturing readings jumped to two-year highs, boosting the outlook for the world's second-largest economy.

The Hang Seng China Enterprises Index closed 1.5 percent higher. China Shenhua Energy Co. rallied the most in eight months as the improving economic picture bolstered the outlook for commodity prices. Sands China Ltd. led gains by casino operators after Macau gambling revenue climbed to the highest level in almost two years. Cofco Meat Holdings Ltd. tumbled in its trading debut. The Shanghai Composite Index added 0.7 percent.

The factory data lifted shares in Hong Kong a day after the city's benchmark stock index capped its worst monthly loss since February. The Hang Seng Index declined 1.6 percent in October as mainland flows into the city through an exchange link with Shanghai dried up and investors boosted bets on higher U.S. borrowing costs.

"The market has turned more positive and confident that China's economy will stabilize in the fourth quarter," said Linus Yip, a Hong Kong-based strategist at First Shanghai Securities Ltd. "After a correction in Hong Kong and being at a relatively low level, the market needed some stimulus to gain power and the China figures helped trigger that."

The Hang Seng China Enterprises Index climbed to 9,706.20, with a gauge of 50-day volatility rising to the highest since Aug. 22.

The Hang Seng Index gained 0.9 percent in its first advance in six days. Mainland investors sold a net 729 million yuan ($108 million) of Hong Kong shares on Monday, the most since July 2015. The selling continued on Tuesday, with the net figure standing at 545 million yuan.

Factory Data

China's manufacturing purchasing managers index rose to 51.2 in October, the National Bureau of Statistics said, compared with a median estimate of 50.3 in a Bloomberg survey of economists and a reading of 50.4 in the prior two months. The private Caixin version of the gauge was 51.2, better than September's 50.1.

Shenhua Energy jumped 6.4 percent, taking its gain for the year to 41 percent, the biggest on the H-share measure. China raised transaction fees for thermal coal futures for a third time in a week after the nation's benchmark spot price increased to the highest level in more than four years. Deutsche Bank AG analyst James Kan wrote in a note that coal prices may continue rising in the fourth quarter.

Sands China jumped 2.8 percent, the most in more than a month. Galaxy Entertainment Group Ltd. advanced 2.2 percent, while Wynn Macau Ltd. gained 1.2 percent.

Macau's gross gaming revenue rose 8.8 percent from a year earlier, according to Macau's Gaming Inspection and Coordination Bureau, exceeding analyst estimates of a 5.5 percent increase. October figures are typically higher due to a week-long Chinese public holiday.

China Communications Construction Co. added 3.8 percent, while China Railway Group Ltd. rose 3.3 percent. Investors have been betting that the country's decision makers will favor infrastructure projects and fiscal spending to counter the slowest economic expansion in more than two decades.

Cofco Meat sank as much as 24 percent to HK$1.52 from the offering price of HK$2, which was at the lower end of a marketed range, according to data compiled by Bloomberg. The meat producer and distributor, which just completed a $252 million initial public offering, closed at HK$1.66.

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, Philip Glamann