Hong Kong shares set for sluggish end to week, China flat

Fri Apr 12, 2013 1:13am EDT

* HSI +0.2 pct, H-shares -0.2 pct, CSI300 flat

* Hong Kong due for best week since January, but low turnover

* Lenovo hit by downgrade on expected slowing China PC sales

* "Big Four" China banks up, Central Huijin ups stakes

By Clement Tan

HONG KONG, April 12 (Reuters) - Hong Kong and China shares were headed for a sluggish end to contrasting weeks, with cyclical sectors broadly weaker on Friday as investors saw mixed signals from a slew of economic data from the world's second-largest economy this week.

At midday, the Shanghai Composite Index and the CSI300 of the leading Shanghai and Shenzhen A-share listings were flat. Both were down 0.2 percent for the week, and seemed headed for a third-straight weekly loss.

The Hang Seng Index was up 0.2 percent for the day, while the China Enterprises Index of the top Chinese listings in Hong Kong was down 0.2 percent. Both were on track for their best week since January, and were up 2 and 2.5 percent, respectively.

Even then, gains in Hong Kong have lacked conviction, coming in extremely weak turnover. Citi strategists said that in the week that ended April 10, outflows from Asia equities came mainly from China exchange-trade funds (ETFs), totalling $570 million.

Chinese lending data on Thursday topped forecasts, but total social financing, the central bank's broad measure of liquidity in the economy, more than doubled in March from February, signalling there is significant risk in the financial system.

It also raised concerns that credit has to be soon tightened. Such concerns were further stoked by the Chinese central bank draining 17 billion yuan from the mainland financial system this week as Shanghai bourse volumes tanked.

China's first quarter GDP growth data and industrial output, retail sales and urban investment data for March are due on Monday.

"There's hardly been any fresh inflows into equities and I think fund managers will still look to further reduce their holdings in equities from very high levels early this year," said Zhang Qi, a Shanghai-based analyst with Haitong Securities.

"If their aim is to keep risks manageable, it would certainly seem like the PBOC (People's Bank of China) may have to rein in more liquidity after the spike in money supply and total social financing last month," Zhang added.

But on Friday, the A-share listings of China's "Big Four" banks were mildly buoyed by a report in the official Shanghai Securities News that Central Huijin Investment, an arm of the China Investment Corp, spent about 2 billion yuan ($322.77 million) in the last six months increasing its stakes in those banks.

In Shanghai, China Construction Bank (CCB) inched up 0.2 percent, Bank of China rose 0.3 percent, Agricultural Bank of China (AgBank) climbed 0.7 percent, while Industrial and Commercial Bank of China (ICBC) was flat.

WEAKNESS ABOUNDS

Lenovo Group followed Thursday's 5.8 percent plunge with a 5.2 percent dive that took its Hong Kong shares to their lowest since mid-November. Citi downgraded Lenovo by two notches, from "buy" to "sell", believing its China personal computer business will start to slow.

This comes after International Data Corp said on April 10 that PC sales plunged 14 percent in the first quarter, the biggest decline in its two decades of keeping records.

Basic material sectors were also weaker. Trina Chen, Credit Suisse's sector analyst, said in a note that Beijing's 2013 closure targets for obsolete capacity in 19 industries, released on Thursday, are likely behind market expectations.

The official People's Daily reported on Thursday that inventories of major steel products in 22 large cities in China hit a record high of 15.6 million tons at the end of March, citing the China Iron and Steel Association.

Angang Steel fell 2.1 percent in Hong Kong and 0.6 percent in Shenzhen. Chinese coal producers were broadly weaker in Hong Kong, with Yanzhou Coal down 2.4 percent and China Coal shedding 1.2 percent.