Hong Kong stocks reached their highest level in a month on optimism over earnings, while reduced worry about monetary tightening in China and attractive valuations kept supporting the case for going long mainland banks.
Traders said interest was particularly strong in banks and conglomerates as inflation fears waned and expectations grew that the central government was moving to ease its tightening stance.
China reversed punitive reserve requirements for some banks after getting them to rein in lending, two sources told Reuters on Tuesday, an indication of success in a crucial part of the government's campaign to control inflation.
In an encouraging sign, the Hang Seng's 0.4 percent gain to a one-month high came as turnover on the Hong Kong exchange picked up a notch, rising to HK$77 billion, the highest in six sessions. CCB gained 1.7 percent and larger rival ICBC closed up 1.5 percent and were the biggest boost to the Hong Kong market. Both banks trade at discounts of more than 20 percent to their historic forward 12-month earnings multiples, according to Thomson Reuters Starmine and are seeing earnings expectations revised upwards.
The financial sub-index outperformed lifting the Hang Seng to 23,810.1. It faces resistance at around 24,100, a level marking the top of a downward trend in place since November 2010 when the index hit a near 2-1/2 year high. Among other gainers, Cathay Pacific rose 4.5 percent, extending gains after reporting earnings well ahead of forecasts but warned on high oil prices. Tencent Holdings rose 0.9 percent to record high, bringing its gains for the year to 34 percent.
China's main stock index ended up 0.1 percent, closing over the key 3,000-point level for the first time in nearly four months, led by banks, but volumes eased. Banking shares rose lifting the benchmark Shanghai Composite Index to 3,002.2. The index has gained 7 percent this year, easily outperforming the rest of Asia. The MSCI Asia ex-Japan is down 1.2 percent year-to-date. Bank of China shares gained 2.1 percent in their heaviest trading volume since last October in anticipation of strong earnings. Chinese banks will report 2010 earnings late this month.
The market's overall gains were tempered by profit-taking in energy counters, which fell after gains earlier in the week linked to high oil prices. China Shenhua Energy Co Ltd , the country's largest coal company, ended down 1.5 percent.
The country's largest company PetroChina Co Ltd lost 0.7 percent on Wednesday. China Petroelum & Chemical Corp (Sinopec), China's top oil refiner, was up 0.1 percent after the company's general manager said it had stopped exporting gasoline in March. Margins for Chinese oil refiners have been squeezed since oil passed $80 per barrel, and policymakers have repeatedly said state-owned refiners must not pass all higher crude costs onto consumers, according to a report by Citi analysts. The property sub-index was down 0.6 percent in profit-taking a day after a record earnings report by sector bellwether China Vanke.