Shanghai shares rallied on Thursday, lifting the Hong Kong market as rising steel prices boosted metal shares while property firms rose on reports that a property tax would not be levied before 2012. Bucking the broad weakness in many other Asian markets on concerns over the US economy, the Shanghai Composite Index gained 1.1 percent, extending its weekly gain to nearly 6 percent, which would be the biggest advance since December.
Gains in Shanghai helped Hong Kong's Hang Seng reverse earlier losses to close 0.5 percent higher. After months of underperformance, the Shanghai market is outperforming other regional peers in July. Returns on the Shanghai index are 5 percent higher than those on the Hang Seng and about 2 percent higher than the MSCI Index of Asian stocks outside Japan so far this month.
"Most of the negative news has been factored into the market," said Cheng Yi, an analyst at Xiangcai Securities. "It will be no problem hitting 2,600 points." The Shanghai Composite, now at 2,562.41, could face technical resistance as it hits the 50 percent retracement level of its 2008-2009 rally while weekly charts still indicate chances of a pullback. Property shares climbed on reports a property tax would be levied only in 2012, later than expected, in a pilot programme to be rolled out in several cities.
Shanghai's property sub-index was up 2.1 percent with Gemdale, the second most-active stock on the Shanghai market, rising 2.4 percent. China Vanke Co, the second most-active stock on the Shenzhen market, was up 2.6 percent after Citigroup initiated coverage of the stock with a "buy" rating.
In Hong Kong, concern over the US economy after Fed chief Ben Bernanke's comments had prompted investors to book some profits but fresh buying was seen in the afternoon session as Shanghai stocks rallied, a Hong Kong-based trader said. The benchmark Hang Seng Index closed 0.5 percent higher at 20,589.7, at its day high for the second successive day. The China Enterprises Index of top locally listed mainland companies rose 0.55 percent. In a sign that market players are getting more positive on Chinese shares, short-selling activity in Hong Kong has declined this week while turnover has gradually improved.
The short-to-total turnover ratio for red chips - Chinese firms incorporated abroad - has almost halved this week compared to last and that is one indication that the mood on Chinese shares is turning, said Tacky Cheng, a quantitative analyst at Nomura International. Steel counters extended gains after steel prices in China rose this week after a three-month slump but steel mills and traders still lack confidence in the market, concerned the rebound could be short-lived.
Shares of Angang Steel rose 2.2 percent extending their weekly gain to over 16 percent. It rose 2.8 percent in Shenzhen. Tencent Holdings fell 1.4 percent after China's online game market shrank in the second quarter for the first time in more than year. Agricultural Bank of China rose 2.5 percent after Capital Research and Management Co disclosed a HK$12.66 billion ($1.63 billion) stake, making it the second-largest holder of the bank's Hong Kong-listed shares.