Hong Kong stocks rebound from biggest weekly slide in five months as traders change tack to skirt Beijing’s regulatory assault

Hong Kong stocks rebounded from their biggest weekly loss in five months, as traders shifted their money into companies with attractive valuations and whose businesses are underpinned by government policy.

The Hang Seng Index rose 0.9 per cent to 26,198.65 at the noon break, reversing a loss of as much as 0.8 per cent earlier in the session. New-energy vehicle and solar power stocks advanced, while China Resources Land led gains among property developers, the cheapest sector in the benchmark index.

China’s Shanghai Composite Index gained 1.5 per cent.

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After a tumultuous week that sent the Hang Seng gauge plunging by 5 per cent for the worst weekly performance since February and wiped out US$715 billion in market capitalisation from onshore and offshore stocks, traders have adjusted their strategy to navigate the changing regulatory landscape. Investors should buy into stocks linked to the green economy and advanced manufacturing, as the regulatory tone has remained hawkish since the move to decimate the private education industry, according to Morgan Stanley and UBS Group.

In a Politburo meeting chaired by President Xi Jinping on Friday, senior politicians showed no signs of relenting in their campaign to rein in the industries they blame for exacerbating social inequality and widening the wealth gap. Tightening the rules on the approval of overseas listings and increasing curbs on housing speculation will be among the top priorities of policymakers, according to a Xinhua News Agency report on the meeting.

“In the near term, regulatory headlines could continue to cause market volatility,” said Meng Lei, a strategist at UBS. “We suggest short-term investors focus on sectors with strong policy support such as new energy (carbon neutrality), electric vehicles and semiconductors. Long term, investors could gradually add positions in ‘quality growth’ consumer names when valuations become more attractive.”

A gauge of implied volatility in the Hang Seng Index rose to a 14-month high last week, and the daily trading volume was 13 per cent above the 20-day average for this time of day on a Monday, according to Bloomberg data.

Electric car maker BYD surged 4.4 per cent to HK$249.40, heading for a fourth straight day of gains and Xinyi Solar Holdings advanced 2.6 per cent to HK$16.

Among the biggest winners in the Hang Seng Index, China Resources Land, Country Garden Holdings and Longfor Group Holdings rose at least 4 per cent as investors seek safety in low-valued stocks. The property stocks on the benchmark are trading at almost a 30 per cent discount to their book values, the lowest among all the industry groups, Bloomberg data shows.

Alibaba Group Holding, which owns the South China Morning Post, added 0.9 per cent to HK$190.70 ahead of its quarterly earnings release on Tuesday. Its net income for the quarter probably fell 4.4 per cent from a year earlier, according to the estimate of analysts surveyed by Bloomberg.

On the mainland, Kweichow Moutai, the world’s most valuable liquor maker, rose 4.1 per cent to 1,747 yuan, erasing an intraday loss of as much as 3.5 per cent sparked by its interim results showing growth in first-half net income had slowed to a five-year low. The mutual fund managed by China’s biggest money manager, one of Kweichow Moutai’s 10 biggest shareholders, curtailed its holdings of the company significantly in the second quarter, according to the interim report.

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