China's benchmark index hit a 2011 high on Thursday and attractive valuations could drive mainland shares higher, while profit taking in overbought blue chip stocks weighed on the Hong Kong index on Thursday. The Hang Seng index closed down 0.01 percent at 24,281.8, snapping five days of gains.
Institutional investors were scooping up some shares that had lagged gains in the past three weeks, providing a source of support that may help lift the broader market once a bout of profit taking is over. "There also looks to be some rotational buying today, as investors are placing orders for laggard stocks that were not seen to be directly linked to anticipated Japan post-quake reconstruction," said Peter Lai, director at DBS Vickers in Hong Kong.
Among the biggest drags on the Hang Seng on Thursday, PetroChina Co Ltd , down 0.7 percent, had a relative strength index (RSI) value of 86 at the start of trading on Thursday. Cheung Kong Holdings , down 2.2 percent, and Industrial and Commercial Bank of China Ltd (ICBC) , down 0.8 percent, both had RSI values of 81. Funds were mainly chasing HSBC Holdings , which though up 6.8 percent since March 17, lagged the 9.0 percent gains on the benchmark in the same time period, analysts said.
HSBC and China Mobile Ltd , among the bigger laggards in the Hang Seng, may drive a fresh rally on the Hang Seng next week, two analysts said. They could be joined by Chinese oil giants, CNOOC Ltd and Sinopec Corp , which both gained 1.5 percent after China announced it would raise gasoline and diesel prices to record highs late on Wednesday. Trading volume for stocks on the Hang Seng index slipped from Wednesday and was less than the 30-day average.
The index has recently broken above a trend line that connects its previous peaks in October 2007, November 2010 and January this year, suggesting the market may head higher. China's main stock index closed at its highest levels this year on Thursday, supported by strength in selective shares such as cement companies on expectations of strong earnings in the first quarter.
Nineteen of the 20 cement companies listed on the Shanghai and Shenzhen market rose, with three companies jumping by their 10 percent limit. Jiangxi Wannianqing Cement jumped its daily limit after it forecast a more than 2,000 percent rally in its first-quarter earnings. The benchmark Shanghai Composite Index ended up 0.2 percent at 3,007.9 points, its highest level since November 15.
"Large caps did not perform very well today. That capped a sharp rise," said Chen Shaodan, an analyst at China Development Bank Securities in Beijing. "But we don't think the uptrend will be changed in the near term." Analysts widely expect the index will rise to 3,100 points at most in the near term. Although investors remain concerned about high inflation and further tightening policy measures, China stocks are undervalued.
The MSCI China stocks index is trading at 10.94 times 12-month forward earnings estimates as of a week ago, below the 10-year average of 12.68 times, Thomson Reuters I/B/E/S data showed. Traders expect another PBOC tightening move in the next few weeks as the money market rates fell even after the central bank raised interest rates on Tuesday.
"There will probably be another RRR (reserve requirement ratios) hike in April," said a trader at a state-owned bank in Shanghai. Analysts said the hike could come as early as Friday. Most of the oil shares listed on the Shanghai and Shenzhen markets rose after China said it increased retail gasoline and diesel prices from Thursday. Hubei Guochuang Hitech Material rose 2.3 percent, while Sinopec Shandong Taishan Petroleum was up 2.4 percent. But PetroChina fell 0.3 percent.
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