Hong Kong stocks climb after one day selloff

Hong Kong - Hong Kong stocks recovered some ground after sinking the most in two weeks on Monday as investors judged Hillary Clinton the winner of a US presidential debate. Casinos and banks led gains.

The Hang Seng Index climbed 1% at 1:36 local time, rising along with US stock-index futures and the Mexican peso.

Sands China rebounded from its lowest level in almost a month, while Galaxy Entertainment Group advanced 1.9% before holidays next week in China. Industrial & Commercial Bank of China paced gains by lenders.

The Shanghai Composite Index lost 0.1%.

Hong Kong’s benchmark equity index has outperformed its Asian peers this quarter with a 13% rally, helped by rising flows from the mainland as investors sought shelter in cheaper valuations and a dollar-pegged currency.

That’s driven a valuation gap between dual-listed shares in the city and Chinese exchanges to near the narrowest since 2014.

Clinton and Donald Trump clashed over trade, the economy and race relations in the highly anticipated exchange.

"Investors prefer Clinton instead of Trump, and right now investors are still optimistic on the election results," said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong.

"The market is rebounding after a pullback yesterday, but the momentum isn’t strong."

Margin debt

The Hang Seng Index rose to 23 574.49 after slumping on Monday. The Hang Seng China Enterprises Index climbed 1.1%, extending its quarterly advance to 12%. The Shanghai Composite has gained 1.6% in the period.

Mainland investors continued to buy Hong Kong shares through a stock link with Shanghai on Tuesday, purchasing a net 1.62bn yuan ($243m), while foreign investors turned net sellers for a second day.

The connect will be closed from Thursday in the run up to the holidays, which will shutter onshore financial markets for the whole of next week.

Futures on the S&P 500 Index gained 0.5%, Mexico’s peso rebounded from a record low and haven assets including the yen and gold fell.

Citigroup has said an election victory for Trump could sink equities and warned this week that it may also spur volatility in the gold and currency markets. While the US lender said it sees a 40% chance of Trump winning, a Bloomberg Politics poll had him and Clinton deadlocked heading into the debate.

Bullish risk

"Hillary looks the stronger of the two," said Simon Pianfetti, a senior manager at the market solutions department at SMBC Trust Bank Ltd. in Tokyo. "This is bullish risk, and yen negative."

There were signs mainland investors were pulling back before the holidays, with margin traders paring holdings of shares purchased with borrowed money for a third day on Monday.

The outstanding balance of margin debt on the Shanghai Stock Exchange has fallen to 495.3bn yuan, the lowest in more than a month.

Data released on Tuesday showed China’s industrial profits grew 19.5% on year in August. While the figures are a sign of stabilization, earnings dropped the most since 2011 in the year-earlier period in the wake of a stock market rout and yuan devaluation.

Chinese authorities have scrapped guidelines on Qualified Foreign Institutional Investors’ mainland asset allocations, according to people familiar with the matter.

The China Securities Regulatory Commission has told market participants that it no longer requires overseas investors to put at least 50% of their assets into stocks, the people said.

A CSRC press official declined to comment.