Life of Guangzhou - Euphoric Mood as Direct-train Hopes Drive Stocks to Highs

The Hang Seng Index soared to a record for the fourth straight day as punters predicted money from the mainland's "direct train" individual investor scheme could begin arriving in Hong Kong next week.

Under a blue-sky scenario, the index could reach a fair value of 35,000 points next year, UBS strategist Andrew Look said.

He based his estimate on the assumption that fund flows from the scheme would depress the 10-year Hong Kong dollar swap rate to a 50-basis- point discount to 10-year US Treasury yields.

Under the base-case scenario, the fair-value estimate for next year would be 28,000, he said.

The benchmark index added 2.74 percent yesterday - more than any other market in the world - to close at 26,551.94, up 708.16 points. Earlier in the day, it hit an all-time high of 26,635.27.

"It's an euphoric day," said Fulbright Securities general manager Francis Lun Sheung-nim.

A record HK$140.05 billion worth of shares changed hands.

Just two stocks - China Mobile (0941) and Hong Kong Exchanges and Clearing (0388) - accounted for 40 percent of the index gain. China Mobile, considered a proxy for mainland plays, jumped 5.8 percent, or HK$6.50, to HK$118.10.

HKEx, a primary beneficiary of rising market turnover, surged 8.8 percent, or HK$19.20, to end at a record close of HK$238.40. Earlier in the day, it hit a record high of HK$248.40.

"We ... confirm that there are no negotiations or agreements relating to intended acquisitions," HKEx said in a statement.

Shares in HKEx are continuing to go higher as market volumes hit the roof, and the bourse operator is taking the market higher with it, according to Merrill Lynch.

"Even if the Hong Kong government doesn't buy another share, any uptick in the counter and the street automatically assumes it's the government anyway," the bank said in a note to clients. "The street then buys more shares alongside - a vicious cycle."

H shares also surged to another record close, led by PetroChina (0857).

The Hang Seng China Enterprises Index ended at 16,406.04, up 4.54 percent or 712.38 points. Earlier in the day, it touched an all-time high of 16,442.94.

"The market's still following last week's rally," said Tung Tai Securities associate director Kenny Tang Sing-hing. "The market still hopes that there could be some funds flowing in from the mainland after the October holiday."

PetroChina jumped 10.34 percent to HK$14.30 on speculation an A-share listing in Shanghai would be approved.

Other resource companies also led the pack among China plays.

Shenhua Energy (1088), the largest coal producer in the mainland, jumped 6.6 percent to HK$46.15. Jiangxi Copper (0358) added HK$1.50, or 7 percent, to end trading at HK$22.95.

(By Benjamin Scent)