Hong Kong and mainland stocks rose again on Friday, reaching fresh 2011 highs, and institutional investors are expected to keep increasing their exposure next week based on attractive valuations and demand for materials. The benchmark Hang Seng Index recorded a third weekly gain as institutional investors have turned bullish following a favourable earnings season and signs of China inflation easing.
The Shanghai Composite Index closed up 0.7 percent on the day and 2.1 percent on the week to 3,030.0, a fresh 2011 high, keeping the index above the key 3,000-point level and extending the gain on the year to 7.8 percent. The benchmark Hang Seng Index closed up 0.5 percent on the day and 2.8 percent on the week. During Friday's trading, it reached a new high for the year of 24,468.6 before dipping to close at 24,396.1. The next target for the Hang Seng is 25,000 - which was tested in November 2010.
"The Hang Seng will probably top last November's peak sometime end April or early May," said Li Kwok-Suen, a fund manager with Phillip Securities Ltd in Hong Kong. "Institutional investors will mainly drive this rally, with hedge funds giving it a lift." In Hong Kong, China Unicom (Hong Kong) Ltd led gains on the benchmark, closing up 6.5 percent on volumes that were five times its Thursday level and 2.3 times its 30-day average. The stock ended the day technically overbought, with a relative strength index (RSI) value of 77.5.
Analysts said there was some rotational buying within the telecommunications sector on Friday, with investors buying Unicom and selling its more established peer, China Mobile Ltd, down 0.3 percent on the day. Still, several analysts expect China Mobile and HSBC Holdings, which have strong weight in the benchmark, to lead a broad rally on the Hang Seng next week, but suggest that other big banks and resource stocks might support.
HSBC, up 1.0 percent on the day, is trading in Hong Kong at a 12-month forward price-to-earnings ratio of 10.7 times, below the 10-year average valuation of 13.1 times, Thomson Reuters I/B/E/S data showed. China Mobile is trading at 10.1 times, lower than its average valuation over the past decade of 12.6 times. A slew of IPOs in the next few weeks will likely support a rally, thanks to foreign inflows, which have increased in the last three weeks, analysts said.
SBI Holdings is expected to debut on April 14 with Hui Xian, Cheung Kong's yuan-denominated real estate investment trust, expected to debut April 15. In its quarterly report released on Thursday, HSBC Global Research shifted to overweight on Chinese equity markets for the first time in a year, while remaining neutral on Hong Kong. Analysts at the bank cited the effectiveness of Chinese monetary policy on keeping inflation contained. M2 growth slowed to 15.7 percent year-on-year in February, lower than the 16 percent target the Chinese central bank has set for this year. The base effect also suggests inflation will slow in the second half of 2011, HSBC said.
China's main stock index ended up 0.7 percent on Friday as investors bought selected stocks, such as steel companies, keeping the index hovering above the key 3,000-point level. "Generally, the index did not fall sharply after interest rate hike," said Ju Zihua, an chief analyst AVIC Securities in Jiangxi province. "But, a cautious mood is still hovering around the market, and we still need to focus on some previous hot shares and blue chips."
He said non-ferrous metal, coal, brokerage and other blue chips were in focus. Turnover in Shanghai fell to 147 million yuan ($22.4 million) from 152 billion yuan on Thursday, reflecting investors' worries about inflation and further tightening of monetary policy.
Almost all steel makers listed on the Shanghai and Shenzhen market rose as investors were upbeat that steel demand would be large in April following the earthquake in Japan. Inner Mongolia Baotou Steel Union, the most active share, jumped its 10 percent daily limit, while Xining Special Steel Co rose 6.1 percent.