Hong Kong shares fell 1.08 percent on Monday, tracking a softer tone in overseas markets and ignoring a firmer China market as investors were reluctant to bet on further gains by local stocks after the recent rally. The Hong Kong market gained more than 1,600 points in the seven trading days since September 2.
Brokers said hopes for a recovery in the world's third-largest economy may give support to both the local and China markets on the run up to the national day on October 1. "Investors took profit instead of betting on further gains as stocks were seen as expensive after the recent advance," said Andrew To, sales director at Tai Fook Securities. "A softer copper price triggered concern about the pace of global recovery." The benchmark Hang Seng Index closed down 229.22 points at 20,932.20. The China Enterprises Index, which represents top locally listed mainland Chinese stocks, was down 0.91 percent at 12,157.09.
Turnover dropped to a skimpy at HK$50.9 billion (US $6.6 billion) from HK$61.04 billion on Friday. Weaker copper and oil prices weighed on mining and energy stocks in Hong Kong with China's key copper producer Jiangxi Copper losing 3.5 percent, and the world most valuable oil and gas producer PetroChina sliding 1.7 percent.
The dollar crawled up on Monday from a one-year low against other currencies as speculators booked profit on bets against the greenback. US crude oil dropped about $1 per barrel to near $68 and gold prices dipped on the dollar's slight gains. Copper prices also retreated.
Top Chinese paper board producer Nine Dragons Paper fell 2.4 percent after it posted an 11.5 percent fall in annual profit to 1.66 billion yuan ($243.1 million) for the year ended June, but management said its 2010 profit margin could be maintained at 2009 levels or higher because of strong demand.
China's key stock index ended up 1.2 percent at a one-month closing high on Monday, after breaching major resistance at 3,000 points, as funds unfrozen for Metallurgical Corp of China's IPO flowed back into the market. Shares of tyremakers fell while those of poultry producers jumped following a trade spat between China and the United States.
The Shanghai Composite Index closed at 3,026.741 points after crossing key resistance at 3,000 points for the first time since August 24. The index gained 2.22 percent on Friday, buoyed by strong August data that signalled China's recovery was well on track.
Gaining Shanghai A shares far outnumbered losers by 827 to 48, while turnover rose to 157 billion yuan ($23 billion) from a thin 138 billion yuan on Friday. Chinese tyremakers, led by major producer Double Coin, plunged on Monday after a weekend US decision to levy an extra duty on Chinese-made tyres, sparking a new trade dispute between the two global economic giants. China's Commerce Ministry said on Sunday that it had launched an anti-dumping investigation into imports of US chicken products and vehicles in an apparent retaliation.
Double Coin plunged by its daily 10 percent limit to 19.01 yuan, while Guzhou Tyre dropped 6.7 percent to 14.95 yuan. Both Shandong Minhe Animal Husbandry and Hunan New Wellfull, a pork producer, soared by their 10 percent daily limits. "Investors are worried that protectionism might hurt already soft Chinese trade, with the index only managing a small rebound, partly helped by funds unfrozen from MCC's IPO," said Wen Lijun, analyst at Nanjing Securities.
Rising tensions between China and the United States could further hurt sluggish Chinese exports. China said on Friday that August exports fell about 23 percent from a year earlier, while imports were down about 17 percent, both lagging forecasts. But analysts remained optimistic about the outlook despite expectations the index would likely consolidate around 3,000 points in the near term as concerns over upcoming share supply from newly listed issues could drain money from the main board.
China's securities regulator will begin auditing applications this week from seven companies that want to list on its much-anticipated second board, state media reported on Monday. "The 3,000-point level is important technically and psychologically, but investor confidence is recovering while the market does not lack money," said Zhou Lin, senior analyst at Huatai Securities in Nanjing.
"It is very likely for the index to stand above that level in coming days with turnover catching up." An ING investment director told Reuters late on Friday that Chinese stocks should continue to perform strongly and would likely outperform the US blue chip stock market in the medium term.
"At this moment, we believe China's A-shares, coming down roughly 25 percent from their peak but still up 40 percent year to date, have upward potential for the rest of the year. This applies to Hong Kong's H-shares as well," said Roy Scheepe, director of business development, Asia-Pacific, at ING Investment Management.