Tuesday, December 7, 2010

Hong Kong, Shanghai shares rise as China cash crunch eases

HONG KONG/SHANGHAI: Hong Kong shares recouped early losses on Tuesday, Dec 7 as a rally in shares of large cap commercial property plays and a recovery in Shanghai markets pushed the benchmark Hang Seng index up 0.8 percent.

Shanghai's key stock index ended the day up 0.7 percent, shrugging off talk of another rate hike in China, as a plunge in short-term money market rates suggested major Chinese banks had started to lend again.

Money market rates had jumped last week in the face of a cash crunch, which forced financial institutions and banks to sell shares to raise cash ahead of further tightening measures expected from Beijing.

"There's a rumour about rate hikes almost every week," said an equity trader at a Korean bank in Hong Kong.

"Also, I think another rate hike is within market expectations right now and with fundamentals, especially for commodities, looking strong at the moment, we're optimistic," said the trader.

Conglomerate Wharf Holdings jumped 5.8 percent, just shy of a record high, with traders citing strong retail sales at its key malls in Hong Kong.

Wharf shares, which Credit Suisse rates as one of its top six picks for 2011, also benefited from a shift among investors to commercial property companies from residential developers as pressure on the government to clamp down on surging home prices intensifies.

The Hang Seng index, which ended at 23,428 points on Tuesday, has fallen some 6 percent since mid-November but is still up 7.1 percent so far this year.

Investors have used the latest worries over euro zone sovereign debt and China policy rightening to book profits after a 10-week rally since the end of August took the index to technically overbought levels.

Among other active counters, shares of Foxconn jumped 3 percent on over 5 times their average 30-day volume after the electronics giant told Reuters it was planning a major push for its retail business in China.

Foxconn shares are the benchmark's worst performers this year, down about 38 percent, as labour issues, escalating costs and dwindling demand spooked investors earlier in 2010.

Margins could become one area of concern for Asian companies in coming quarters as wages rise and a rally in commodities pushes input costs higher.

"The bad news may be that in the short-term costs are going to run up too quickly for a lot of companies and they might disappoint in being able to deliver earnings," said Sean Darby, chief Asia strategist for Nomura at conference in Hong Kong.

But Darby remains optimistic on Asia stocks for 2011, saying the region would continue to attract inflows and would benefit from asset reallocation away from fixed income and into equities.

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SHANGHAI RECOVERS

The Shanghai Composite Index ended at 2,876.4 points in thin trade, closing above its 250-day moving average, a level around which analysts had expected the index to stabilise.

"Everyone is waiting for the inflation figures due next Monday," said Cheng Yi, an analyst from Xiangcai Securities in Shanghai.

The China Securities Journal said that this weekend offered a "sensitive window" for a rate rise, which would be the country's second in its current tightening cycle.

"If there is no rate rise this weekend, I think the chances of a rate rise this year are slim. This would help the market warm up again," said Cheng.

Retail investors, who account for two-thirds of turnover, have tended to focus their trades around policy movements rather than market fundamentals as Beijing moves to control inflation and curb asset bubbles.

Large banks which had been hoarding funds in anticipation of policy tightening on Tuesday finally caved in to pressure from smaller institutions which had refused to borrow at recently high rates.

Property issues led the gains with Shanghai's property sector , a prime target of speculation due to government policies, up 1.4 percent and outperforming the broader market.

Analysts said persistently high home prices in cities such as Shanghai and strong sales by real estate firms were supportive factors.

"Property stocks will of course be impacted by a rate rise. But we have seen falls for so long, this has been priced in," said Xu Yinhui, analyst at Guotai Junan Securities, in Shanghai.

Top developer Vanke was 2 percent higher, while Poly Real Estate gained 1.4 percent.

Dalian Port , north China's largest port operator, slumped by its 10 percent trading limit after its shares surged as much as 45 percent on its trading debut on Monday. - Reuters


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