HK stock market lifted by banks; earthquake impact minimal

HONG KONG - Hong Kong shares rose strongly, lifted by banks, after China's central bank hiked the reserve ratio by a smaller-than-expected amount. Investors seemed to downplay the potential market impact of the earthquake in Sichuan province.

The blue-chip Hang Seng Index rose 489.60 points, or 2 percent, to 25,552.77.

Traders said investors are still bullish and the benchmark index should rise to 26,000 later this week. In a bid to cool the fast-growing economy, the People's Bank of China on Monday said it will require most commercial banks to keep 16.5 percent of their deposits on reserve from May 20, up from 16 percent. It was the fourth increase in the ratio this year.

"The fundamentals of the Chinese economy are looking very good. The hike in the reserve requirement ratio is not a big deal for the banks," said Francis Lun, general manager at Fulbright Securities.

China Construction Bank rose 4.9 percent to HK$7.12, Industrial & Commercial Bank of China was up 3.2 percent at HK$6.10, Bank of China rose 2.8 percent to HK$3.99 and Bank of Communications was up 2.1 percent at HK$10.82.

The market was little affected by Monday's 7.9-magnitude earthquake in Sichuan province that killed an estimated 10,000 people.

"The Sichuan earthquake, although significant in magnitude, will not likely hamper China's economy or listed companies' earnings on a large scale at the market level," Jerry Lou, an analyst at Morgan Stanley, wrote in a research report.

Nan Sheng, an analyst at UOB KayHian, said he expects China Life and Ping An to pay up to a combined 200 million yuan ($28.6 million) as compensation in insurance claims. Sheng said the amount is "tiny" relative to the two insurers' combined forecast net profit of nearly CNY50 billion this year.

"These are very rough estimations but I believe the impact on earnings, and thus on share prices, should be minimal," he added.

China Life rose 1.5 percent to HK$33.20 and Ping An was up 1.4 percent at HK$70.85.

On the mainland Chinese exchanges, the benchmark Shanghai Composite Index fell 1.8 percent to 3,560.24 while the Shenzhen Composite Index slipped 0.2 percent to 1,109.90.