China shares outshine Hong Kong with best week in 2 months

Fri Mar 22, 2013 5:14am EDT

* HSI slips 0.5 pct on the day, down 1.9 pct on the week

* CSI300 up 0.1 pct on Friday, jumps 3.1 pct this week

* PetroChina at lowest close in 4 mths after earnings miss

* China funds have 4th week of net outflows: Citi, EPFR

By Clement Tan

HONG KONG, March 22 (Reuters) - China shares closed out their best week in nearly two months on a tepid note on Friday ahead of a slew of earnings due from bellwether companies that will offer clues on how they are adapting to the country's changing economic landscape.

Onshore Chinese markets outperformed offshore peers again this week as Hong Kong benchmarks posted a second-straight weekly loss. A-shares are now trading at their biggest premium over H-shares in more than six months.

The CSI300 of the leading Shanghai and Shenzhen A-share listings closed a choppy Friday session up 0.1 percent, while the Shanghai Composite Index crept up 0.2 percent as bourse volume dipped 15 percent from Thursday.

On the week, these onshore indexes jumped 3.1 and 2.2 percent, respectively, compared with the 1.9 percent slide for the Hang Seng Index and the 1.1 percent loss for the China Enterprises Index of the top Chinese listings in Hong Kong.

The Hang Seng Index slipped 0.5 percent and the China Enterprises Index eased 0.4 percent on Friday, as Hong Kong turnover sank to the lowest in two weeks and was some 17 percent below its average in the past month.

"A lot of companies have so far reported earnings broadly in line with expectations," said Peter So, co-head of research at CCB International Securities.

With investors still divided on the pace of earnings recovery, they are more likely to reward companies able to generate more immediate returns on new capital expenditure, So added.

According to Thomson Reuters StarMine, 43 percent of Hong Kong-listed companies have reported earnings, and almost half of those missed expectations.

PetroChina sank 1.4 percent to its lowest close since end-November in Hong Kong after it reported a steeper-than-expected 13.3 percent drop in 2012 net profit on Thursday, due in part to ballooning losses at its natural gas import business.

In a note on Friday, Morgan Stanley analysts said a combination of rising gearing, huge capital expenditure and relatively slow earnings growth are starting to put PetroChina's balance sheet under pressure.

"Significant policy reforms are needed (yet out of company's control) to turn PetroChina's refining and gas pipeline operations around and reaccelerate its earnings," they said in the note, maintaining their underweight rating on the stock, believing its premium valuation over its peers is unjustified.

Down 6.7 percent in 2013, PetroChina is trading at a 4.5 percent premium to its historical median forward 12-month earnings, according to StarMine. CNOOC is trading at a 22 percent discount, while China Petroleum and Chemical Corp (Sinopec) is trading on par with its median.

CNOOC slipped 0.8 percent on Friday and has dived 14.7 percent in 2013. After markets closed, it posted a 9.3 percent fall in 2012 net profit to 63.7 billion yuan, compared to a Thomson Reuters I/B/E/S consensus forecast for 64.9 billion yuan from 31 analysts.

Sinopec, due to post its earnings by Sunday, gained 0.2 percent in Hong Kong and 2.7 percent in Shanghai. This year, it is down 0.3 percent in Hong Kong but up 11.6 percent in Shanghai.

China Construction Bank slipped 0.6 percent in Hong Kong and 0.1 percent in Shanghai ahead of its earnings due on Sunday, the first among the "Big Four" Chinese banks to report.

China Unicom jumped 3.7 percent in its best day since August after the country's second-largest mobile carrier posted a slightly better-than-expected 68 percent rise in 2012 net profit from a year earlier.

Since Jan. 30, the Hang Seng Index has declined 7.2 percent while the China Enterprises Index has shed more than 10 percent.

Citi strategists said in a note on Friday that offshore China funds saw a fourth-straight week of net outflows in the week ended March 20, citing data from global flows tracker EPFR.