Shanghai shares saw an eight-day winning streak end on Thursday, pulling down Hong Kong, as financial and property stocks slid after China's central bank signalled it would shift its focus back to tackling inflation from supporting growth. The official China Securities Journal reported that first-tier cities may slow issuance of pre-sale permit in the first half of 2013, which added to jitters after the People's Bank of China flagged containing speculative housing demand as a focus.
The Hang Seng Index ended down 0.4 percent to 23,177 points, keeping above Tuesday's one-month closing low at 23,148.5. The China Enterprises Index of the top Chinese listings in Hong Kong shed 1.4 percent. In the mainland, the Shanghai Composite Index fell 0.7 percent following its eight-day winning streak during which it rose 6.2 percent. The CSI300 of the top Shanghai and Shenzhen A-share listings shed 0.6 percent from Wednesday's 17-month closing high. Shanghai's losses came in the third-lowest volume in 2013, while Hong Kong turnover stayed lacklustre although it sneaked above its 20-day moving average for only the third day in almost two weeks.
"There's some rotation trade going on now, especially among those who got in early in the rally," said Hong Hao, the Hong Kong-based chief strategist at Bank of Communication International Securities. In a turnaround from its previous focus of supporting economic growth, the Chinese central bank said in its fourth-quarter monetary policy report that the country needs to pay special attention to consumer prices.
Hong said he believes "it's too early to start worrying about inflation in the first quarter. If anything, the central bank's statement shows demand is returning, although some form of property cooling policy can be expected if prices keep rising." Chinese banks were among the top drags on benchmark indexes in both onshore and offshore markets. China Minsheng Bank tumbled 5.2 percent in Hong Kong and 6 percent in Shanghai.
Before Thursday, Minsheng shares in both markets had more than doubled from early September as signs of a recovering Chinese economy and low valuations spurred interest in the bank. China Vanke, the country's largest property developer by sales, slid 2.3 percent. The Chinese central bank's commitment to contain speculative home demand followed the State Council affirming late on Tuesday the gradual expansion of property taxes to more cities.
In Hong Kong, China Resources Land lost 3.2 percent to its lowest since late December, while Shimao Properties plunged 6.6 percent in its worst daily loss since June. Shares of Aluminium Corporation of China (Chalco) fell 2.8 percent in Hong Kong after the index manager said late on Wednesday that Lenovo Group will take its place as a Hang Seng Index component from March 4. Lenovo's shares jumped 5.2 percent. The announcement was part of a quarterly review that also saw Haitong Securities replace ZTE Corp as a component on the China Enterprises Index. ZTE's shares in Hong Kong slid 1.4 percent. Haitong shed 2.1 percent after private equity firm PAG, a cornerstone IPO investor, sold a $150 million stake.
In Hong Kong, investors rotated into counters that have lagged the rally from lows late last year as the corporate earnings reporting season will pick up after next week's Lunar New Year holiday. "We expect the rally to falter at some stage, similar to what happened in late 2011 and early 2012, as we remain sceptical of the quality of the recent economic rebound," David Cui, Bank of America-Merrill Lynch's chief China equity strategist said in a note dated February 6. "We doubt that much positive earnings revision will come through."
Still, headwinds remain for the food and beverage sector after shares of Ajisen Holdings and China Foods dived 7 and 13.7 percent respectively after warning about declining profits. But sector giant Tingyi Holdings rose 2 percent in Hong Kong. In the last 30 days, analysts have revised upwards their earnings-per-shares estimates for Tingyi, but not the other two food companies, according to Thomson Reuters StarMine.
Tingyi shares are up 4.6 percent this year after falling 8.7 percent in 2012 and are now trading at a 5 percent discount to its forward 12-month earnings, according to StarMine. Shares of Asian insurance giant AIA Group climbed 1 percent to their highest in about a month. Four of 17 analysts raised their full year 2012 earnings-per-share estimate by an average of about 25.7 percent in the last month, according to StarMine.
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