Hong Kong shares gain slightly, China slips

Mon Oct 22, 2012 1:12am EDT

(Updates to midday)

* HSI +0.1 pct, H-shares -0.1 pct, CSI300 -0.4 pct

* HKEx at highest since May, capital inflows to buoy HK trading volumes

* China Mobile slightly higher ahead of Q3 earnings later Monday

* Longfor, Greentown up after Goldman Sachs says conviction buys

By Clement Tan

HONG KONG, Oct 22 (Reuters) - Hong Kong shares made slight gains during Monday morning trade to outperform Asian peers, with bourse operator Hong Kong Exchanges (HKEx) benefitting from expectations that trading will be buoyed by rising capital inflows into the territory.

Money flowing into Hong Kong forced the territory's monetary authority to intervene in the currency market on Saturday for the first time in three years after the Hong Kong dollar pushed against the top-end of its trading band.

The Hang Seng Index ended the morning session up 0.1 percent at 21,578.5, in a quiet start to the week having clocked gains in each of the previous seven weeks.

Meantime, the China Enterprises Index of the top Chinese listings in Hong Kong slipped 0.1 percent.

And mMainland Chinese markets were weaker too, with traders citing a report in state-run China Business News that Shanxi province has launched a new policy to cap property developers' profits at 10 percent, penalising those that exceed the cap by withholding their pre-sales permits.

The CSI 300, made up of the top Shanghai and Shenzhen listings, was down 0.4 percent, while the Shanghai Composite Index slipped 0.5 percent.

Although it outperformed Asian peers and is hovering at its highest intra-day level since March, the Hang Seng's gains have been stymied by chart resistance at about 21,600 since last Thursday. Hong Kong markets are closed for a public holiday on Tuesday.

Some traders interpreted Hong Kong Exchange's (HKEx) gains as evidence of favourable underlying sentiment.

HKEx rose 2.4 percent to its highest since May, with the taking the hare price into positive territory on the year. HKEx is now up 0.8 percent in 2012, compared to the 17 percent rise on the Hang Seng Index, as trading volumes fell off sharply this year.

"I think you can tell from HKEx today that (foreign) money remains quite positive on China. There's some profit taking today, but volumes are quite small," said Jackson Wong, Tanrich Securities' vice-president for equity sales.

Otherwise, the markets were weighed down by weakness in the shares of the two Chinese oil majors. CNOOC shed 0.7 percent, while PetroChina fell 1.8 percent on both the Hong Kong and Shanghai exchanges.

EARNINGS BACK IN FOCUS

China Mobile, the country's largest mobile operator, is expected to kickstart the third-quarter corporate earnings season among Chinese companies listed in Hong Kong later on Monday.

Its share rose 0.7 percent, bringing its total 2012 gain to more than 12 percent to date.

China Mobile is currently trading at an 8 percent discount to its historic 12-month forwards earnings multiple and a 23 percent discount to its 12-month forward price-to-book value, according to Thomson Reuters StarMine.

In the last 30 days, six out of 33 analysts have cut their 2012 full year earnings-per-share estimate for China Mobile by average of 0.3 percent, according to StarMine.

Shares of Baotou Steel Rare-Earth (Group) Hi-Tech Co , fell 3.4 percent after China's top rare earths producer posted a 90 percent slump in net profit for the third quarter from a year earlier.

This, along with reports of fresh curbs on the property sector in Shaanxi, put the Chinese resources sector under pressure as investors used the opportunity to take profits in a sector that has been an outperformer.

Jiangxi Copper slipped 2.4 percent in Hong Kong, trimming its gains this month to 3.9 percent after surging almost 17 percent last month. It rose 1.7 percent in Shanghai.

China Vanke lost 1.5 percent in Shenzhen, while Poly Real Estate slid 1.1 percent in Shanghai.

But investors in Hong Kong largely shrugged off the report on Shaanxi. Longfor Properties rose 2.3 percent and Greentown China jumped 4.4 percent after Goldman Sachs added both Chinese developers as conviction buys in Asia Pacific.

"We expect Longfor to deliver strong-than-peer contract sales growth in 2012 on its opportune land banking since the second quarter in 2012, strong brand equity and execution ability," Goldman Sachs said in a report on Monday. (Additional reporting by Vikram Subhedar; Editing by Simon Cameron-Moore)

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