China shares rebound from 2-mnth low, lift HK stocks

Thu Aug 20, 2009 12:12am EDT

 * Fund approvals signal regulatory support for China market
 * Yangtze Power jumps 4 pct on share buyback
 * ZTE drops on weak gross margins in 2nd quarter
 By Parvathy Ullatil & Claire Zhang
 HONG KONG, Aug 20 (Reuters) - China shares bounced off a
two-month closing low on Thursday, lifting Hong Kong-listed
stocks, amid signs of official support for the sliding markets
including the approval of new funds.
 A share buyback by the parent company of Yangtze Power Co
(600900.SS) and the central bank's stable bill auction yield on
Thursday, also helped rein in the 20 percent sell-off over the
past two weeks.
 "China's economy is still on the right track for recovery and
the index's recent fall is just a powerful technical correction,"
said Zhang Lan, head of research at Changjiang Securities in
Shanghai.
 Addressing global investor worries over the health of China's
economic recovery, Zhang added that corporate earnings in the
second quarter improved remarkably from the first quarter.
 HONG KONG
 By 0345 GMT, the benchmark Hang Seng Index .HSI was 1.6
percent higher at 20,278.80 with shares worth HK$24.7 billion
changing hands.
 Analysts read the weak turnover in Wednesday's sell-off as a
positive sign for the market, as it suggested there was no panic
among investors. Turnover dropped to HK$64.4 billion on Tuesday
from an average of HK$80 billion in first two weeks on August.
 But the shrinking premium between yuan denominated A shares
and their Hong Kong-listed counterparts, which fell to a more
than two-month low on Wednesday, could hit the flow of hot money
from China as it gave investors less reason to look for bargains
in Hong Kong, said analysts.
 ICBC (1398.HK), the world's largest bank by market value,
trailed ahead of its first-half earnings.
 The China Enterprises Index .HSCE, which represents top
locally listed mainland Chinese stocks, was up 1.6 percent at
11,438.74.
 Equipment maker Harbin Power (1133.HK) was the top percentage
gainer on the H-share index after Citigroup raised its rating on
the stock to buy from sell, expecting the company to benefit from
rising sales volumes and margin expansion in the second half.
 The stock was up up 5.5 percent at HK$8.06. The brokerage
increased its target price on Harbin to HK$10 from HK$7.50.
 Chinese telecom equipment maker ZTE Corp (0763.HK) dropped
3.8 percent, even after huge spending by the country's wireless
operators on 3G networks lifted its second-quarter earnings by
nearly 42 percent, as investors were concern about
weaker-than-expected margins during the period.
 Credit Suisse cut its rating on the stock to "neutral" from
"outperform", saying it saw limited upside for the stock in the
near term after its more than 120 percent surge since the
beginning of the year.
 SHANGHAI
 The Shanghai Composite Index .SSEC rose 2.1 percent to
2,844.052 by midday.
 Turnover for Shanghai A shares was at 60.3 billion yuan ($8.8
billion), while gaining Shanghai A shares outnumbered losers by
713 to 213.
 The China Securities Regulatory Commission granted approval
to three exchange-traded funds to trade Chinese stock indexes and
to two stock-oriented funds over the past several days, official
media reports said.
 And in a sign of continued easy money policy, the People's
Bank of China auctioned three-month bills in its regular open
market operations on Thursday at a yield of 1.3280 percent,
unchanged from last week.
 But analysts said economic and market fundamentals might now
be less a focus for investors, who have become caught up in the
momentum of the market slump.
 "After the index breached a series of key technical barriers
earlier this week, sentiment will decide the market's near-term
trend," said Xu Yinhui, senior stock analyst at Guotai Junan
Securities in Shanghai.
 "Shorts and longs are expected to fight a fierce battle ahead
of the index's half-year moving average," which is now just above
2,700, Xu said, adding that the mutual fund news should give only
limited support to the overall market.
 Traders said retail investors, who account for about 60
percent of daily turnover on the Shanghai and Shenzhen bourses,
had rushed to trim their positions this week amid a panic sparked
by the unexpected downward momentum of the market's tumble.
 China's young institutional investors, which are dominated by
mutual funds and have yet to develop into a true pillar of the
market, also took profit on positions built earlier this year at
much lower levels.
 PetroChina (601857.SS), the most heavily weighted stock in
the index, gained 3.8 percent to 13.20 yuan.
 Yangtze Power jumped 4 percent to 13.31 yuan after it said
its parent company had bought a 1 percent stake in the listed
company in a move to support its share price.
 During the depths of another market slump in the second half
of last year, regulators pushed the parents of major listed
companies to buy their listed units' shares to support the
market.
 (Editing by Edmund Klamann and Chris Lewis)