Zoomlion Heavy (1157.HK), the maker of concrete and crane machinery, jumped 7.6% this morning in Hong Kong, making it the best-performing stock in the Hang Seng large- and mid-cap universe, after the Peopleâ€™s Bank of China cut its banksâ€™ reserve ratio last night.
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This market reaction is a bit of surprise (to this blogger) as Zoomlion outperformed direct beta-play financials â€“ banks, brokers, insurance companies, as well as the heavily indebted real estate developers.
Everything seems in favor of Zoomlion today. About 70% of Zoomlionâ€™s revenue is exposed to construction in the real estate sector, which will benefit from more liquidity, according to Citi Research. Around 15% is on environment protection and importantly, over 12% is from agriculture. Yesterday, the central bank said it would give rural banks another 50 basis point cut and Agricultural Development Bank of China would get a 4 percentage points cut.
In addition, â€œthe RRR cut would also reduce the account receivables risk for Zoomlion, which used to drag down the valuation,â€ noted Citi analyst Eric Lau and team.