Hong Kong shares declined broadly as turnover hit its lowest in six weeks on Monday after disappointing global economic data, but strength in defensives helped China shares eke out gains on average turnover. Investors continued to short Chinese banks, which have a large weighting in benchmark indexes, and show a reluctance to put money in the financial sector.
"The US jobs debacle and this ongoing eurozone problem is really not creating an environment where funds want to get in," said a Hong Kong-based trader, who added long-only funds were receiving money from investors but fund managers were more keen to sit on cash at the moment.
After data on Friday showed the US economy added a much lower than expected 18,000 jobs in June, Chinese data over the weekend showed inflation at a 3-year high and a wider trade surplus than expected, stoking fears that China's central bank could take further steps to stem higher capital inflows that have increased price pressures. The Hang Seng Index fell 1.7 percent to 22,347.23 points, slipping further below its 250-day moving average that has proved stiff resistance over the past week.
While institutions have held back, company executives have bought into the recent market weakness, a sign that there could still be value to be found at current levels, according to some analysts. "Company insiders, who tend to time the market well, are selling less and buying more, both in Hong Kong and mainland China stock markets," HSBC strategists said in a Monday note. Agricultural Bank of China, Industrial and Commercial Bank of China and China Construction Bank (CCB) were among the most shorted stocks in Hong Kong.
Turnover hit its lowest in six weeks, but CCB fell more than 2 percent in relatively healthy volume as another potential stake sale continued to trump historically low valuations. The lock-up period for Bank of America's 10.2 percent stake, valued at about $19 billion, expires next month and shares are unlikely to see a big move higher till that gets out of the way. The Shanghai Composite Index clawed back early losses to close up 0.2 percent to 2,802.7 points, with gains in water resources and airlines negating losses in financials and energy names. Shanghai A-share turnover equalled its 20-day average on Monday, totalling over 100 billion yuan.
"The market doesn't seem to be reacting too adversely to the inflation and trade data," said Zhang Qi, an analyst with Haitong Securities in Shanghai. "The downside surprise seems to have been factored in for now, but it's uncertain how it would affect profitability so people are just waiting and seeing for now," he said. Water resources-related counters saw gains supported by policy moves after Chinese President Hu Jintao announced water reforms as a cornerstone of national infrastructure priorities at a conference over the weekend.
Anhui Water Resources Development Co Ltd rose 5.1 percent while Gezhouba, operator of massive projects along the Yangtze river, rose 2 percent. Airline stocks climbed, led by Air China, on reports that China will invest 1.5 trillion yuan ($232 billion) in the aviation industry in the next five years.
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