Chinese shares rose on Thursday, with the Hong Kong index hitting a 28-month high, as emerging markets continue to attract strong inflows on the back of a weak dollar. Hong Kong's benchmark Hang Seng rose 1.7 percent to 23,852.2 on particularly heavy volume. Turnover rose to HK$139 billion, well over twice the average daily volume seen in 2009.
Chinese banks provided the biggest boost to the market, with renewed interest in the sector as investors chase laggards and relatively low valuations tempt those seeking value in a market that has sharp made gains in the past six weeks. ICBC shares rose 5 percent. ICBC currently trades at 9.8 times forward 12-month earnings, a 24 percent discount to their 10-year median multiple, according to Thomson Reuters data. China Construction Bank Corp rose 3 percent.
Surging turnover pushed shares of Hong Kong Exchanges & Clearing up 5 percent, to a 32-month high. But with the benchmark's relative strength index at its highest level since 1993, suggesting it is highly overbought, some traders are getting cautious. "Traders were quite a bit more reluctant today in bidding up out of the money index calls, hinting that further upside from these levels is limited for now," said a derivatives trader at a Singaporean bank.
Still, with inflows into the region showing few signs of waning, momentum might ensure that stocks hold gains. Societe Generale estimated, based on EPFR data as of October 6, that $6.1 billion dollars were funnelled into emerging market stock funds compared with a $6.5 billion outflow from the US.
"Like it or not, loose monetary policy is here to stay and money flow coming out of the US and into Asia is here to stay," said Pranay Gupta, chief investment officer for ING Investment Management Asia Pacific, who oversees $85 billion in assets. China's key stock index closed up 0.6 percent, its highest in nearly six months, after paring some of its initial gains to close below a key technical level.
The Shanghai Composite Index ended at 2,879.6, extending its fifth consecutive daily rise to gain 8 percent. "Not being able to stay above this resistance level is a confidence issue," said Ren Chengde, analyst at Galaxy Securities. "We have risen so much so fast so the whole market is a little nervous at this technical point which is normal."
Volumes jumped, following a trend of increasing turnover across Asian markets, to an 11-month high of 263 billion yuan ($40 billion) from 227 billion yuan on Wednesday. Analysts said profit taking was to be expected in the days ahead after the index with 250-day moving average, now at 2,888 points, serving as resistance.
Banks were among the biggest gainers as Huaxia Bank, up 1.3 percent, forecast that its net profit for the first three quarters jumped more than 50 percent. Analysts expect the 16 banks listed in the mainland's Shanghai and Shenzhen stock exchanges to post an average 30 percent jump in their earnings in the first nine months. Also, China's central bank released data on Wednesday showing strong lending by Chinese banks in September, and foreign trade figures that showed the country's resilient import growth.