China shares post best week since October 2011, outshine Hong Kong

Fri Feb 1, 2013 4:30am EST

* HSI ends flat on the day, up 0.6 pct on the week

* CSI300 up 2.1 pct on Fri, jumps 6.7 pct this week

* A-share premium returns after month-long hiatus

* China brokers, insurers lead afternoon A-share climb

* China property weak on fears of more curbs

By Clement Tan

HONG KONG, Feb 1 (Reuters) - China shares closed out their best week in 15 months, helped by an afternoon surge on Friday that also lifted the Hong Kong market from earlier losses rooted in news an official survey of manufacturing activity in China lagged expectations.

Markets began paring losses after a second, private survey by HSBC showed growth quickening to a two-year high in January. Both markets had started the day weaker after the official purchasing managers index (PMI) eased to 50.4 for January, below forecasts for a nine-month high of 50.9.

The Hang Seng Index closed flat on Friday, ekeing out a 0.6 percent gain this week. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.7 percent on the day and 1.8 percent on the week.

Hong Kong turnover stayed under its average in the last month for a fifth-straight session ahead of the U.S. non-farm payrolls data later on Friday. Shanghai volume stayed relatively robust, picking up in the afternoon as investors chased gains in the brokerage sector.

In the mainland, the CSI300 of the top Shanghai and Shenzhen A-share listings ended up 2.1 percent on the day and 6.7 percent for the week. The Shanghai Composite Index climbed 1.4 percent on Friday and 5.6 percent this week.

The outperformance of onshore markets over offshore peers this week returned the Hang Seng China A-H Price Index above the 100 level only for the second day since mid-November, suggesting A shares are now trading at a slight premium over H shares.

"January data may have been skewed by some methodology issues, but if you look at the HSBC reading, which tends towards smaller enterprises, it actually suggests the uptrend is intact," said Hong Hao, chief strategist at Bank of Communication International Securities.

For fund managers, "the greater dilemma is deciding how to deploy the increasing amount of money coming their way after such a big run up," Hong said. "That is raising concern that we are due for a correction soon."

Pointing to that likelihood, short selling accounted for about 9.6 percent of total turnover in Hong Kong on Friday, above the historical 8 percent average, traders said.

On Friday, Chinese brokerages and insurers were among the leading index boosts in the mainland after what a mid-sized mainland broker attributed to speculation that some restrictions on the sector may be lifted by end-March.

In Shanghai, Citic Securities climbed 3.7 percent while Haitong Securities spiked 5.4 percent. Their smaller rival Founder Securities surged by the maximum 10 percent limit.

Chinese insurers, considered a proxy play on the A-share market given their high level of investment, were also strong. New China Life Insurance rose by the maximum 10 percent limit, while Ping An Insurance jumped 5.3 percent.

Investors also chased gains for mid-sized Chinese banks. China Minsheng Bank gained 8.9 percent in Shanghai to complete its best week since April 2008, a 20.4 percent surge.

In Hong Kong, Minsheng rose 5.6 percent to hit a record closing high. It is now up 31.3 percent since the start of the year after a 33 percent gain in 2012.

WEAKNESS ABOUNDS

Strength in the financial sector outweighed weakness in other growth-sensitive sectors hit by China's underwhelming official manufacturing survey. Steel conglomerate Citic Pacific slid 1.1 percent in Hong Kong.

The Chinese property sector was weak after the official China Securities Journal newspaper reported that China will postpone expansion of a pilot programme to implement a property tax and that Beijing intends to keep a tight lid on the real estate market through other means in tier 1 cities.

A private survey showed average home prices in China's 100 biggest cities rose 1 percent in January from December, further inflaming the day's jitters.

China Vanke slipped 0.4 percent in Shenzhen, while in Hong Kong, China Resources Land fell 2.5 percent and China Overseas Land shed 2.3 percent.

Wynn Macau lost 2.3 percent, underperforming the Macau casino sector after getting hit by its parent company's underwhelming quarterly earnings.

This was further aggravated by data showing Macau gambling revenue rose a lower-than-expected 7.3 percent from a year before.