Chinese shares bounced on Friday, driven by gains in the property sector, as some investors saw recent market weakness as overdone and sought bargains among index heavyweights. Despite the rally on the mainland, Hong Kong investors remained cautious amid broad weakness in other Asian markets and sent the benchmark index to its first weekly loss in five.
The Hang Seng index, the top performing regional benchmark so far this year with gains of 3.7 percent, ended the day 0.5 percent lower with energy shares the top drags as oil headed to a 2 percent weekly drop. The Shanghai Composite finished up 1.4 percent.
For the week, Shanghai fell 2.7 percent and Hong Kong shed 1.7 percent as investors worried that further policy tightening in China could curb its robust economic growth. "Recent market falls were really too exaggerated," said senior analyst Zhang Qi at Haitong Securities in Shanghai, pointing to the reasons behind Shanghai's rebound on Friday.
"It shouldn't be a big surprise for the index to stabilise around the current level if only you look at the robust economic growth and corporate earnings." The benchmark appeared to have found support when it fell as low as 2,667.3 points on Friday and tried to bridge a gap between 2,655 and 2,677 points that had opened up in early October.
Nearly all 16 banks listed on the Shanghai and Shenzhen stock exchange outperformed the index on Friday, with ICBC, the world's largest lender by market capitalisation, rising 1.7 percent. Six banks, including ICBC, are now among 10 Chinese shares which have the lowest 2010 forecast price earnings ratios out of China's around 2,100 listed companies, according to a local brokerage Everbright Securities.
China's main property stock index ended up 3.8 percent on Friday, with top listed developer Vanke rising 3.0 percent. The index, which on three occasions so far this year has recorded moves of 5 percent or more, is down 20 percent from its 2010 high touched in April last year when the government started its crackdown on property speculation.
The bounce on mainland markets failed to lift Hong Kong's Hang Seng index, which traded briefly in positive territory at mid-morning but slipped back into the red as energy shares pulled the market lower. CNOOC fell 2 percent and was the top drag on the index. Petrochina fell 1.5 percent.
Coal major China Shenhua fell 2 percent, extending its weekly drop to 7 percent, with investors taking profits after five straight weeks of gains that came on the back of steadily declining volume. Short-selling as a percentage of overall turnover in the iShares exchange traded fund that tracks the top 50 mainland shares rose to 22 percent as of midday on Friday, up from this week's average of 10.5 percent, exchange data show.
With some of those bets likely paying off with the ETF down 3.8 percent in the past five days, a bout of short-covering could provide support for the H-shares in Hong Kong next week. The retail sector bucked the broader weaker market trend on the day with consumer goods exporter Li & Fung closing up 1.5 percent and hitting a record high intra-day. The stock has surged more than 20 percent in the last three months. China Unicom, the country's No 2 mobile carrier, also outperformed, rising 2.3 percent after it said its total mobile subscribers increased to 167.4 million in December which included 14.1 million 3G users.