Hong Kong stocks edged lower on Monday, weighed down by higher oil prices, but a buoyant day in Shanghai shielded the market from bigger declines and underscored growing optimism about Chinese shares. A rally in energy counters, in particular coal, lifted the Shanghai Composite 1.8 percent to 2,996.2, its highest level in nearly four months, after helping the benchmark break out above its February peak around 2,940.
Those gains helped markets in Hong Kong outperform the rest of Asia with the Hang Seng index down 0.4 percent compared with a decline of 0.9 percent for the MSCI Asia ex-Japan index. The steady gains in Chinese markets come as the government lays out its economic goals for the next five years at meetings under way in Beijing where Premier Wen Jiabao maintained that curbing inflation will be this year's top priority.
The main gauge of Chinese counters listed in Hong Kong, the China Enterprises index, ended down just 0.2 percent as energy plays rose with coal counters taking their lead from oil producers. "Coal is a substitute for oil, and as oil prices go up, coal prices follow. Secondly, investment expectations are very strong," said Qian Qimin, an analyst at Shenyin and Wanguo Securities in Shanghai.
"Everyone wants to participate in this sector." Oil producer PetroChina Co Ltd , China's largest listed company by market capitalisation, closed up 2.6 percent. China Shenhua Energy Co Ltd, the country's biggest coal producer by market value, was one of seven energy firms whose stock prices shot up by the daily maximum of 10 percent on Monday.
Shares of China Shenhua were further boosted after a proposed $8.8 billion joint project with South African petrochemical firm Sasol to turn coal into fuels in northern China received initial environmental approval from authorities. Shenhua shares in Hong Kong rose 3.2 percent, the top gainers on the benchmark followed by peer China Coal, which was up 1.9 percent.
US crude surpassed $106 to reach the highest price in 2-1/2 years as a counter-offensive by Libya's Muammar Gaddafi against rebels deepened concerns about a civil war in the African oil producer. While higher oil prices helped the energy sector some markets players have raised concerns about the impact of spiralling energy costs on corporate profitability, in particular airlines and the transportation sector.
Shares of Cathay Pacific slumped 3.5 percent and were the worst performers on the Hang Seng. Air China shares fell 3.9 percent. China Eastern Air Holding, parent of China Eastern Airlines Corp Ltd, forecast lower profit this year because of high oil prices, said the holding company's Deputy General Manager Li Jun. China Eastern shares shed 1.7 percent.
Investors will gain further insight into the possible impact of rising oil prices when Cathay Pacific reports its annual results on Wednesday. While the airline is expected to report record profits for 2010 as air travel rebounded sharply, analysts will look for how the company is reacting to a 16 percent rise in crude oil prices so far this year which has made its shares the worst performers on the benchmark index, down 17.6 percent year-to-date.
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