Hong Kong shares ended an eight-day losing streak as solid German economic data added to strength in large caps such as Tencent Holdings and oil refiners that earlier on Tuesday pulled the benchmark index into positive territory. Signs that the Hang Seng index might have stabilised as well as news Germany grew 0.5 percent in the first quarter spurred some investors to cover bearish bets after days of relatively high levels of short-selling in Hong Kong.
The Hang Seng ended the day up 0.8 percent with the late-day spurt lifting it back above its 200-day moving average and preventing the benchmark from having its longest streak since May 1984. The China Enterprises index also rose, closing up 1 percent, despite weakness on mainland markets. The Shanghai Composite fell 0.3 percent but the large-cap focused CSI300 managed to finish up 0.1 percent.
"You have to say there's a lack of conviction out there," said Tom Kaan, a director at brokerage Louis Capital Markets in Hong Kong. "A lot of people missed the boat at the start of the year and bought in March only to see those investments turn sour. Last week everyone was looking to short," said Kaan, adding that the boost to the euro from Germany's better-than-expected data was lifting risky assets across the board.
The Hang Seng index has lost nearly 1500 points since hitting a 2-1/2 month high on May 2. Yet short-selling, or bets that prices will decline further, has averaged 9.5 percent of total turnover over the past week, suggesting investors were positioned for more weakness. One trader at an American brokerage in Hong Kong said the 'short-squeeze' - or a rush to cover short positions - in Hong Kong in the afternoon started with the consumer electronics sector on talk of a Chinese government plan to boost sales of household goods.
Haier shares rose 6.5 percent on volume more than twice their 30-day average. Shares of electronics retailer Gome rose 3.1 percent. China's dominant internet firm Tencent Holdings extended its gains rising 2.1 percent and inching back towards a life-high hit on May 3 as shares continued to outperform the broader markets.
Optimism over Facebook Inc's valuations was underpinning strength in Tencent shares, said analysts, as Silicon Valley's biggest-ever initial public offering gets set to price later this week. The gains in Tencent were amongst the biggest boost for the Hong Kong benchmark behind a 1.6 percent rise for HSBC Holdings and a 2.5 percent jump for Petrochina. A drop in crude oil prices on worries about slowing growth in China and a deeper recession in Europe helped lift shares of refiners whose margins stand to benefit from lower oil prices. Shares of Sinopec rose 0.9 percent.
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