Hong Kong and China shares rose on Monday after feuding lawmakers in the United States agreed on a deal to avert debt default but low turnover that worries about global growth were keeping investors wary of making big bets.
Manufacturing data from China and Europe showed factory activity weakening, signalling that global demand was losing momentum, even as developments in the US shift investors' focus back to earnings from China Inc.
Any boost to the market could be limited given other pressing issues, including growth concerns in China and the US, said Ben Kwong, KGI Asia's chief operating officer. Around midday on Monday, the Hang Seng Index had risen rose 1.6 percent but it later lost some of the gain, closing up 1.0 percent at 22,663.4. Turnover totalled about HK$63 billion, about 3 percent below its 20-day average.
Investors have paid little attention to attractive valuations, particularly of Chinese companies, over the past month, but developments in the US could shift the focus back to corporate profitability. In a sign that earnings could take over as the key driver for the markets, insurance giant AIA Group Ltd rose 3.3 percent to a record high on strong volume, extending last week's 6.5 percent gain as investors continued to cheer the company's growth prospects in Asia.
After the market close, HSBC Holdings announced first-half profits that surprised on the upside and said it remained positive on the prospects for emerging market economies. Any gains in its Hong Kong listings could lift the Hang Seng Index, given HSBC's 15 percent weight on the benchmark. The Shanghai Composite Index edged up 0.1 percent to finish at 2,703.8 points, as A-share turnover in Shanghai was almost 40 percent below its 20-day average, nearing a one-year low.
The biggest boost to the benchmark came from coal counters, which outperformed on anticipated higher demand after a government report instructed thermal power plants to continue buying coal and "try to generate as much power as possible" to ward off electricity shortages.
China's top five state-owned power generating groups lost 15.38 billion yuan ($2.39 billion) on their thermal power businesses in the first half, double the losses of a year earlier. They have been taking a hit because coal prices have risen far more than power tariff increases. Yangquan Coal gained 2.5 percent. China Shenhua Energy Co Ltd and China Coal Energy rose 0.2 percent and 1.5 percent respectively.
Banks kept gains for the broader market in check after the sector saw a bounce on Friday when the top banking regulator said stress tests showed that Chinese banks will be able to cope even if property prices, in a worst case scenario, drop by 50 percent.
China Citic Bank Corp Ltd shed more than 3 percent on Monday in volume more than triple its 30-day average. The stock had gained 7.8 percent on Friday. "Citic gained more than its peers on Friday because it stands to benefit the most since its percentage of property loans is higher than the rest," said Eliza Liu, a strategist with CCB International in Beijing.
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