Hong Kong shares set for 1st gain in 4 days, China rebounds

Tue Apr 9, 2013 1:05am EDT

* HSI +0.9 pct, H-shares +1.9 pct, CSI300 +0.6 pct

* Beta plays lifted by benign China March inflation data

* Gains in relatively weak volume, short covering in HK

* Belle jumps after positive Q1 SSS growth

By Clement Tan

HONG KONG, April 9 (Reuters) - Hong Kong shares were headed for a first gain in four days on Tuesday as slower-than-expected inflation in China eased concerns about potential tightening moves in the world's second-largest economy.

Annual consumer inflation eased to 2.1 percent in March, compared with a 2.4 percent Reuters consensus and February's 3.2 percent. Producer price deflation deepened, dropping 1.9 percent in March, versus a 1.8 percent consensus and February's 1.6 percent annual drop.

At midday, the CSI300 of the leading Shanghai and Shenzhen listings was up 0.6 percent. The Shanghai Composite Index gained 0.4 percent at 2,221.4. Both indexes rebounded from their lowest since December.

The Hang Seng Index climbed 0.9 percent, set for its first gain in four days. The China Enterprises Index of the top Chinese listings in Hong Kong spiked 1.9 percent, returning above its 200-day moving average after dropping below that technical level last Friday.

Still, Hong Kong gains came in the weakest midday turnover since March 22. Shanghai volume was similarly weak. Bird flu jitters in the last few days had compounded a selloff since an early February peak in both the China and Hong Kong markets.

"This lower inflation figure is giving the cyclical sectors a small lift, but gains in Hong Kong look largely on short covering," said Wang Aochao, UOB-Kay Hian's Shanghai-based head of research.

More economic data is expected later this week, with trade on Thursday and money supply and loan growth expected between April 10 and 15. First quarter GDP growth data is due on April 15 along with industrial output, retail sales and urban investment data for March.

On Tuesday, growth-sensitive sectors outperformed, with mid-sized lenders seeing the bigger percentage gains in the banking sector. China Minsheng Bank jumped 3.3 percent in Hong Kong and 1.2 percent in Shanghai.

Chinese cement producers Anhui Conch Cement jumped 5.4 percent in Hong Kong and 2.4 percent in Shanghai, while China National Building Material Co Ltd spiked 4.8 percent.

Positive quarterly earnings reported on Monday by Alcoa Inc , the largest U.S. aluminum producer, further buoyed the materials sector. Aluminum Corporation of China (Chalco) rose 2.1 percent in Hong Kong and 1 percent in Shanghai.

But China SCE Property Holdings Ltd. underperformed, slipping 0.6 percent after Hong Kong media reported the Chinese property developer was ordered to stop sales of a project in the Chinese city of Xiamen after it was adjudged to have violated new home sales restrictions.

The official China Securities Journal newspaper reported on Tuesday that Chinese first-tier cities including Shanghai, Guangzhou and Shenzhen are expected to raise down payment requirements for second homes, following Beijing's lead.

BENIGN INFLATION LIFTS CONSUMER SECTOR

China-focused food and beverage giant Tingyi Holdings climbed 2.9 percent to its highest in three weeks on hopes that benign inflation will ease margin pressures. Sector peer Want Want China climbed 3.4 percent.

Shoe retailer Belle International jumped 5.2 percent as investors cheered its positive first quarter same store sales growth (SSSG). The 11 percent SSSG growth for its sportswear business in the first quarter was its fastest in more than four years, Bank of America-Merrill Lynch analysts said.

Tuesday's gains look set to lift Belle further from its lowest since end-June, which was posted last Friday. Still down more than 21 percent on the year, the consumer discretionary counter is currently trading at a 23 percent discount to its historic median 12-month forward earnings multiple, according to Thomson Reuters StarMine.

By comparison, consumer staples Tingyi is down 2.3 percent and trading at a 6 percent premium, while Want Want China is up 8.9 percent and trading at a 15 percent premium. All three stocks are constituents on the Hang Seng Index, which is now down 3.3 percent in 2013.