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Reform euphoria sends China H-shares to 6-month high

Clement Tan
Sunday, 17 Nov 2013 | 11:42 PM ET

* HSI +2.2 pct, H-shares +4.3 pct, CSI300 +1.5 pct

* H-shares at biggest premium over A-shares since Jan 2011

* China consumer, non-banking financials, agri tech top gainers

* China property H-shares see rotation into laggards

HONG KONG, Nov 18 (Reuters) - Chinese shares listed in Hong Kong touched a six-month high early on Monday, led by non-banking financial and consumption-related counters after Beijing promised the most sweeping economic and social reforms in nearly three decades.

Gains in both onshore and offshore Chinese markets came in strong volume. With the relative outperformance of the offshore markets on Monday, H-shares were briefly trading at its biggest premium over A-shares since January 2011.

By midday, the CSI300 of the leading Shanghai and Shenzhen A-share listings gained 1.5 percent, while the Shanghai Composite Index rose 1.4 percent.

UBS Asia equity strategists upgraded their view on China to overweight from neutral, doing the reverse for India. They believe a Chinese re-rating is likely to steal the limelight after Beijing surprised on the scope and tone of the document containing the details of reforms agreed at the party plenum.

The China Enterprises Index of the top Chinese listings in Hong Kong surged 4.3 percent to its highest since May 22. The Hang Seng Index jumped 2.2 percent to 23,532.5 points, briefly testing a two-month high.

"It's been quite a big jump since Friday so people will be starting to reassess from here," said Jackson Wong, Tanrich Securities' vice-president for equity sales.

"Much will depend on implementation details coming out in the next few weeks and months, some sectors such as consumer goods, insurance and brokerages may start to see some re-rating going into the new year as a result," Wong added.

China unwrapped its boldest set of economic and social reforms in nearly three decades late on Friday, relaxing its one-child policy and further freeing up markets in order to put the world's second-largest economy on a more stable footing.

On Monday, Chinese brokerages and insurers saw some of the biggest percentage rises after China's central bank governor pledged soon after the reforms were announced to "pull out all stops" to deepen financial sector reforms.

Part of the plan for financial reforms involve making it easier to firms to launch initial public offerings, which have been suspended in the mainland for more than a year.

Citic Securities, China's largest-listed brokerage, jumped 10.4 percent to its highest since early May in Hong Kong. Its Shanghai listing was up 5.5 percent, extending a rebound from three-month lows recorded last Wednesday.

China Life Insurance , the sector's largest player, soared 7.5 percent in Hong Kong and 4 percent in Shanghai. The launch of health and pension products with tax benefits will be a likely positive catalyst for the sector in the near term, Credit Suisse analysts said.

Shares of companies that sell baby-related products, such as Goodbaby International and Yashili International were also standout outperformers after Beijing relaxed its one-child policy.

Infant formula producer Yashili surged 10.1 percent to a record high, while baby stroller manufacturer Goodbaby jumped 5.8 percent, paring gains after rising by as much as 11 percent in early trade.

LAND, PROPERTY

First Tractor climbed 8.9 percent in Hong Kong, after Beijing moved to make its urbanisation policy more equitable for rural land owners, which Jefferies analysts said will likely lead to an acceleration of farmland transfers in 2014 as smallholdings are consolidated, benefitting agricultural machinery and high-tech farming sectors.

Trading in Chinese property shares was choppy as the sector swung from slim losses in early trade to gains on the day. Data showing home prices jumped by a record pace in October from a year earlier had put the sector on the defensive.

Beijing's plan to create other alternative sources of income for local governments, along with more rights for rural farmland owners, will lead to less support for home prices, said BNP Paribas head of Asia property research Lee Wee Liat.

The "final decision" document committed to an acceleration of property tax implementation, but "at an appropriate time" - suggesting the rollout will be on a more local level, Lee added.

In Hong Kong, investors rotated into Chinese property counters in the sector whose share prices have lagged rivals on the year. China Overseas Land climbed 2.6 percent, while Country Garden inched up 0.4 percent.

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