Friday, December 17, 2010

China shares end lower, tightening worries linger

SHANGHAI: China's key stock index ended down 0.2 percent, near a one-week low in thin volume on Friday, Dec 17, as investors stayed clear of making big bets during the year-end.

China posted robust economic data for November but inflation jumped to a 28-month high, clearing the way for the authorities to unleash a raft of new tightening measures.

In anticipation of such steps, cautious investors fled large cap issues they consider more vulnerable in a policy tightening environment.

Analysts, mostly bullish on the outlook for the Shanghai market in the medium term, expect strong corporate earnings and reasonable valuations to keep in check lingering worries of monetary tightening measures.

The Shanghai Composite Index finished at 2,893.7 points, and posted a rise of 1.9 percent for the week. ($1 = 6.66 yuan).

In Tokyo, Japan's Nikkei average stayed flat on Friday after gaining around 0.9 percent on the week, as losses in trading companies offset gains in banks spurred by foreign buying and hikes in the real estate sector boosted by the Bank of Japan buying scheme.

After rallying about 12 percent since early November, Tokyo shares ran out of steam and stayed flat most of this week, as investors consolidated postions around new levels and sought incentives to break out of a tight 190-point band.

Volume was solid, with around 2.1 billion shares changing hands on the Tokyo Stock Exchange's first section, keeping above the two billion share mark for the seventh straight session, indicating that as the year-end nears and sentiment remains positive more retail players are stepping into the market.

"Foreign funds not only from Europe but also Asian and American ones are unloading their European positions, and with emerging markets already overbought they are investing in undervalued Japanese stocks," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities. The banking sector, which is down some 3.9 percent in year to date, extended gains in heavy trade with Japan's biggest bank by assets Mitsubishi UFJ Financial Group gaining 1.2 percent and Mizuho Financial Group adding 2 percent.

The sector is considered undervalued as its price-to-book ratio stands at around 0.7, underperforming the average PBR of 1.2 for the Nikkei 225 components. If the PBR is below 1 the shares are considered underweight.

The Nikkei was almost unchanged on Friday. shedding 0.07 percent or 7.46 points to 10,303.83, not far below a seven-month closing high of 10,316.77 hit on Tuesday. The broader Topix index was also almost unchanged, losing 0.1 percent to close at 903.14.

Foreigners keep adding banking shares to their portfolios as the Nikkei is set to post significant gains next year, and without a revival in large market-cap banking shares such a recovery will not be possible, traders said.

"We forecast that the earnings recovery among Japanese exporters will continue, aided by the strength of Asian economies and the improving U.S. economy," Barclays Capital said in its "Japan Top Picks 2011" report released on Friday. "We believe this, combined with the expectation for depreciation of the yen against the dollar, will enable the Nikkei average to test 12,000 at the end of 2011," the report said.

Banks are also considered attractive due to their high dividend yield, now at around 3 percent for the sector, compared with the Nikkei's average of 1.6 percent, according to Thomson Reuters data. The MSCI index for Japanese equities shows that Tokyo stocks are still underperforming on the year, having shed around 0.9 percent, while the same gauge for Asian stocks excluding Japan indicates an 11.8 percent jump.

Many analysts say that because Japanese stocks have been underperforming overseas markets, the Nikkei will likely gain further towards the year-end and may target as high as 10,500. "A trigger for such a move could be a decisive break above the 85 yen per dollar line, that could boost exporter shares," added Tokai Tokyo Securities' Kuramochi.

Real estate-related shares climbed after the Bank of Japan's first purchase on Thursday of real estate investment trusts, part of its asset-buying scheme launched in October that aims to push down risk premium and corporate borrowing costs.

Mitsubishi Estate gained 1 percent. The real estate sector, which has gained 1.7 percent in the year to date, rose 0.7 percent and was one of the best-performing sectors in the market.

Investors have been piling into the J-REIT market with the Tokyo Stock Exchange's REIT index having surged over 16 percent since the BOJ unveiled the asset buying plan in October.

Gains in banking and property shares were offset by major trading houses, which were among the biggest percentage losers on the Nikkei. Japan's second-largest trader Mitsui & Co Ltd shed 2.2 percent and the sector's No.5 Marubeni lost 2.4 percent. - Reuters

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