Shanghai and Hong Kong shares eased from overbought levels on Tuesday after signs China's central bank intended to crack down on hot money inflows led to profit-taking, particularly in financials. The central bank unexpectedly raised one-year bill yields at auction, prompting expectations that another rate rise or tighter bank required reserves were on their way.
Shanghai's main stock index fell 0.8 percent, erasing most of Monday's 1 percent advance. Hong Kong's Hang Seng index fell 1 percent, weighed down by a fall in local property developers on speculation that companies will launch fresh share sales to take advantage of lofty stock prices. Hong Kong and Shanghai pulled back from technically overbought levels with their respective relative strength indexes (RSI) falling to 70 and 72 from around 76 on Monday.
However, their RSIs are still the highest amongst major Asian markets. A 3.3 percent fall in China Life was the biggest drag on the Shanghai index. Sinopec fell 1.8 percent to be the second biggest drag, cutting into a rally of about 11 percent since the start of October on the back of firmer oil prices. Despite slipping on Tuesday, an 18 percent rise in the Shanghai Composite in the past six weeks has almost recouped all of the losses since mid-April, when government policies to curb escalating property prices unsettled investors.
Bucking the broader market's weak trend were shares of companies connected to the island of Hainan, which soared after reports that it could become a duty free shopping area from January 2011. Construction firm Hainan Expressway and Hainan-based pig breeder Haikou Agriculture both jumped by 10 percent. Property stocks weighed on the Hong Kong index after share sales from Hang Lung Properties and Sino Land at discounts to market prices prompted concerns that rivals would follow.
Sino Land shares were the top losers on the benchmark, down 5.7 percent, after the company announced a $663 million share at a 7.8 percent discount to Monday's closing price. Last week Hang Lung said it was raising as much as $1.3 billion at a discount.
Wharf Holdings, which fell 4.6 percent, and Sun Hung Kai Properties, which slid 2.1, could be next to tap the market, traders at Daiwa Capital said. Wharf shares traded at record highs last week and are up 27 percent this year after gaining 110 percent in 2009.
The Hang Seng is up 13 percent year-to-date.