Hong Kong Stocks trade up on hopes for easing U.S.-China dispute

Headline shares of the Hong Kong financial market were higher on Wednesday, 12 December 2018, tracking most global markets on hopes for progress in resolving the trade war between China and the United States, and as US President Donald trump sounded upbeat about a trade deal with China. Also, sentiment had got lift from news that Huawei chief financial officer Meng Wanzhou, who faces extradition to the US, was granted bail in Canada. In afternoon trades, the Hang Seng Index advanced 397.68 points or 1.54% to 26,169.35. The Hang Seng China Enterprises Index rose 160.74 points or 1.6% to 10,405.75.

The risk appetite buying underpinned after a reports that China is moving to cut import tariffs on American-made cars from 40% to 15%, and news that Huawei chief financial officer Meng Wanzhou, who faces extradition to the US, was granted bail in Canada.. That report came after Chinese Vice Premier Liu He exchanged views on the next stage of trade talks with U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer. U.S. President Donald Trump said in an interview with reporters that talks were taking place with Beijing by phone and he would not raise tariffs on Chinese imports until he was sure about a deal.

Progress toward easing the steep tariffs China imposed on U.S. vehicle imports this year lifted carmaker stocks across the globe, as investors wagered on a thawing of tensions that have damaged the world's biggest automotive market.

The levy forms the backbone of China's response to a trade war instigated by President Donald Trump as he seeks to reset trade relations and spur manufacturing in the U.S. Car sales in China have fallen for six straight months after decades of almost uninterrupted growth, and while there are other factors, the tit-for-tat jabs between the world's biggest economies have played a role.

Investors were looking ahead to the US consumer price report later on Wednesday where an expected slowdown in headline inflation would only reinforce speculation of fewer rate hikes from the Federal Reserve.

NEWS FROM PRESS: Daiwa Research lowered its target price for China Life Insurance (02628) to HK$23 from HK$25 and maintained its "buy" rating. The research house said China Life kicked off its jumpstart presales campaign in late November and has now almost concluded its presales. Daiwa noted that investor sentiment was negative on it launching 4% guaranteed rate (GR) products. Daiwa estimated the actual interest cost of this product is only 2.5%, or 3.5% including mortality assumptions, thus providing China Life with a sufficient positive VNB margin. The research house expects China Life to see a high-teen YoY decline in 2018 VNB, but double-digit YoY growth in 1Q 2019 VNB. Hence, Daiwa cut its 2018-20 net profit forecasts by 9-20% to reflect its lower investment income forecasts.

Daiwa Research lowered its target price for China Pacific Insurance (CPIC)(02601) to HK$42 from HK$52 and maintained its "buy" rating. The research house sees CPIC's FYP momentum in 2019 being driven by critical illness products, but in the near term, it may be slow to gather pace. Daiwa said CPIC is delaying its 2019 jumpstart preparations as it aims to fulfil its 2018 full-year target before shifting to pre-sales campaigns. The company does not plan to launch 4% guarantee rate products. CPIC has recently highlighted the importance of critical illness in pushing its VNB growth, and its own widening product menu for health insurance. It targets higher-than-peer-average VNB growth for 2019. Daiwa revised down its 2018 VNB growth forecast to -4% YoY. It also cut its 2018-20 net profit estimates by 1-13% due to slower-than-expected investment portfolio growth.

CRRC Corporation Limited (01766) announced that on 11 December 2018, its subsidiary Nankou Company entered into an equity transfer contract with CRRC Real Estate. CRRC Real Estate agreed to acquire 70% equity interest in Nankou Science and Innovation Park at a consideration of RMB428.28 million. After the equity transfer, the relevant gains recorded in the consolidated statements of Nankou Company will be RMB1.02 billion without taking account of taxation implication Proceeds from the transaction will be applied to supplement funds for industrial upgrade, business expansion and capital expenditure of Nankou Company.

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