Flash China PMI pushes Hong Kong shares off 10-month high

Wed Nov 20, 2013 11:43pm EST

* HSI -0.7 pct, H-shares -1.5 pct, CSI300 -1.5 pct

* China property sector sinks as property tax expansion looms

* New China Life Insurance slides after Zurich's H-share exit

* Goldman Sachs upgrades China H-shares to overweight on Asia-basis

By Clement Tan

HONG KONG, Nov 21 (Reuters) - A survey pointing to a weaker-than-expected pace of growth in Chinese manufacturing activity knocked Hong Kong shares off a 10-month high early on Thursday, with markets in the mainland also down as investors took profit on recent outperformers.

The Chinese property sector was a key drag after the State Council approved the establishment of a unified property registration system, setting the stage for a nationwide expansion of a property tax trial.

By midday, the Hang Seng Index, which closed on Wednesday at its highest since early February, was down 0.7 percent at 23,545 points. The China Enterprises Index of the top Chinese listings in Hong Kong sank 1.5 percent.

The CSI300 of the leading Shanghai and Shenzhen A-share listings slid 1.5 percent, while the Shanghai Composite Index shed 1.1 percent. If losses persist, this would be their second loss in three days.

"It's pretty well known that China's economy is slowing down, but the flash PMI was a bit weaker than expected so it was a factor for the correction today," said Larry Jiang, chief strategist at Guotai Junan International Securities.

The HSBC flash purchasing managers' index (PMI) came in at 50.4 in November from October's 50.9 final reading -- its first month-on-month drop in the pace of growth in four months -- checking gains from earlier this week as investors cheered China's ambitious reform agenda.

"But we now know the broader direction that the government is working towards and it should spur a re-rating of the Chinese equity market in 2014," Jiang added, suggesting some investors could buy reform beneficiaries on share price weakness.

Goldman Sachs' Asia equity strategists on Thursday raised their rating on Chinese equities from market weight to overweight, adding to the chorus of investors cheering China's ambitious reform agenda this week after UBS had done the same on Monday.

On Thursday, though, financial counters that led the rally in the previous four sessions were among the biggest losers. Losses came as cash rates rose despite the Chinese central bank conducting its biggest weekly cash injection this week since late September.

New China Life Insurance dived 3 percent in Hong Kong after Zurich Insurance sold its remaining stake at HK$25 per share, representing a 7.7 percent discount to its Wednesday closing price.

Shanghai Jahwa tumbled 6 percent in Shanghai after the cosmetics maker said it was being investigated by the country's securities regulator for disclosure-related issues.

Child skincare products maker Prince Frog International Holdings Ltd plunged 23 percent at the resumption of trade following a month-long suspension after it rejected a short-seller report that took issue with its sales data, saying it was misleading.

REFORMS, REFORMS, REFORMS

Chinese property developers China Vanke fell 3.4 percent in Shenzhen and Poly Real Estate eased 3.3 percent in Shanghai. China Resources Land fell 1.4 percent and Country Garden lost nearly 2 percent in Hong Kong.

Finance Minister Lou Jiwei said in an interview with the official People's Daily that the government will improve the income tax regime and reiterated that it will speed up legislation of property tax and reform.

The official China Securities Journal further aggravated sentiment on the property sector after it reported on Thursday that Beijing may use a higher tax rate in its property tax trial, while "significantly" expanding the range of residence properties that qualify for tax.

But there were gains for ZTE Corp which rose 1.2 percent in Hong Kong and 1.4 percent in Shenzhen on hopes it would benefit from greater capital expenditure by mobile operators after online media speculated that authorities may issue 4G licenses as soon as next week.

Suning Commerce Group climbed 3.3 percent in Shenzhen after the commerce ministry said growth in total online commerce should hit 18 trillion yuan by 2015 and account for more than 10 percent of all consumer retail spending.

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