(Bloomberg) -- Hong Kong's benchmark stock index capped a fifth month of gains, its longest winning streak in more than four years, as improving earnings outweighed concerns about China's campaign to cut leverage.
The Hang Seng Index advanced 4.3 percent in May to be among Asia's best performers. The gauge retreated 0.2 percent Wednesday at the close. Geely Automobile Holdings Ltd. surged 7.5 percent, extending the top performance on the index for the month. Cogobuy Group sank 23 percent, the most on record. The value of shares traded in Hong Kong was the highest in 21 months as MSCI Inc. rebalanced its indexes. The Shanghai Composite Index advanced 0.2 percent after a two-day break, paring its monthly loss to 1.2 percent.
Rallies in technology and financial stocks lifted the Hang Seng Index in May, with Tencent Holdings Ltd., HSBC Holdings Plc and Ping An Insurance Group Co. contributing to more than half of the gauge's advance. This year's surge has attracted short sellers to Hong Kong, where sudden declines for companies like AAC Technologies Holdings Inc. and Cogobuy are becoming more frequent. The picture is less bright on the mainland, where local investors are suffering a third month of losses.
“People are still expecting Hong Kong stocks to outperform,” said Banny Lam, head of research at CEB International Investment Corp. in Hong Kong. “The concern is that we'll have tighter liquidity in June, and everyone will be looking at whether the PBOC injects more money into the system.”
China's benchmark seven-day repurchase rate has climbed every June over the past 10 years as financial institutions hoard cash toward the end of the second quarter and fight for deposits. In 2013, the combination of this and the central bank's reluctance to inject liquidity caused a cash crunch that rippled through global markets.
Offshore liquidity has also been tightening: the overnight yuan interbank rate in Hong Kong, known as Hibor, surged 15.7 percentage points on Wednesday to 21.08 percent, the highest since Jan. 6, while the offshore yuan's overnight deposit rate jumped to 50 percent. The yuan's exchange rate in Hong Kong soared as much as 0.83 percent to 6.7677 per dollar, its highest level since Nov. 4, before trading at 6.7828.
While the Shanghai Composite Index spent the first half of May trading at oversold levels, it has now erased all its losses for the year amid speculation that state funds were active in the market. The measure has bounced back 1.8 percent in the past four days, resisting a short-lived decline brought about by Moody's Investors Service's first rating cut of China's sovereign debt since 1989.
Data on Wednesday showed manufacturing in China expanded at a faster-than-expected pace this month, while a non-manufacturing gauge bounced back from its lowest level of the year.
- Shanghai Bailian Group Co. surged by the daily limit after saying Alibaba plans to buy an 18% stake in its Lianhua Supermarket unit, according to a Shanghai Stock Exchange filing Friday. Bailian last surged by the daily limit in February on the two days following reports it would team up with Alibaba to explore retail strategies.
- Insurers rallied in Hong Kong. Mainland investors are hunting for bargains as southbound trade resumes after a holiday, and the industry is seen as a good bet due to attractive valuations and discounts to peers on the mainland, said Grace Zhou, Hong Kong-based analyst with ICBC International. New China Life Insurance Co. gained 3.1%, while China Taiping Insurance Holdings Co. climbed 2.5%.
- Geely closed at a 23-year high. Mainland investors had their first chance to buy its shares through the trading links since the company announced the purchase of Malaysia's national carmaker Proton Holdings Bhd. Geely gained 23% this month.
--With assistance from Robin Ganguly and Philip Glamann
To contact the reporter on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net.
To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Ryan Lovdahl
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