Hong Kong, Shanghai shares jump two percent

Shares in both Hong Kong and Shanghai rose 2 percent on Thursday, lifted by Chinese financials and growth-sensitive sectors after fears of a global economic slowdown eased on US and German manufacturing data that beat expectations. Chinese banks were bolstered by two developments. First, China's Council late on Wednesday unveiled moves that aim to alleviate funding strains for small- and medium-sized enterprises.
Second, the state parent of the biggest banks appears to have made a concession that would jack up how much they can lend. Gains in Hong Kong are seen more likely to extend in the short-term after the Hang Seng Index finished at 20,739.5 points, breaking above its 200-day moving average, at about 20,529, which was stiff resistance in the last four sessions. The Shanghai Composite Index finished at 2,312.6 points, testing the 2,300-2,320 level that has stymied gains for the bulk of January. A break above this could extend gains in the near term.
The China Enterprises Index gained 2.9 percent. The mainland's top lender, Industrial and Commercial Bank of China (ICBC) jumped 3.5 percent in Hong Kong and 2.3 percent in Shanghai. Thursday's gains on both bourses came in improved trading volumes from Wednesday, with turnover on the Hong Kong main board hitting its highest in seven sessions.
"The A-share market is likely to underperform H-shares in the first half because of greater scepticism about policy easing among mainland investors," Alan Lam, Julius Baer's Greater China equity analyst, told Reuters. Mainland Chinese, or A-share, markets are largely closed to foreign investors.
Lam said that in the short-term, a rally could resume in Hong Kong but without much fresh buying by institutional investors, which is likely to cap gains at the next upside target on the Hang Seng Index, seen at 20,975-21,017. These were the highs reached in September and August, respectively. In addition, 21,017 is the bottom of a gap that opened up between August 4 and 5.
Lam expects the earnings season that starts at the end of February to be a source of downside pressure following profit warnings from several mainland companies this week. Traders said retail investors were more active buyers of Chinese banking shares in Hong Kong during the afternoon session while institutions were more likely sellers into the rally.