Hong Kong shares staged a mild recovery on Wednesday as bargain hunters picked up large cap names after the biggest two-day decline for the benchmark stock index since the Japan earthquake. A 1 percent advance on the Shanghai Composite to a five-month high on rallies in banking and property also supported a move higher in Hong Kong.
The Hang Seng index finished at its day highs, up 0.7 percent to 24,135.03, lifted by gains in heavily weighted banking shares as well as a 3 percent jump for shares of China internet giant Tencent. Turnover on the Hong Kong exchange fell to its lowest level this month.
Investors sought bargains after tumbling commodity prices hit shares of resource companies and pulled the index down a total of 1.7 percent on Monday and Tuesday. Chinese banking shares, which along with HSBC carry the biggest weights on the benchmark index, were all higher helped by a rotation of funds out of shares of local Hong Kong banks that are under pressure to curb lending.
The Hong Kong Monetary Authority on Tuesday stepped up efforts to control lending that threatens to fuel a property bubble and ordered local banks to resubmit to it their annual lending targets by the end of the month. Large mainland banking shares ICBC , China Construction Bank and Bank of China recorded gains of about 1.2 percent while Hong Kong banks extended Tuesday's losses.
Hang Seng Bank fell 0.5 percent amid a large build-up in bearish bets with short-selling in the counter as a percentage of total turnover hitting 57 percent at midday, the record high for the stock. In ending the day up 1 percent, China's main stock index reversed the morning's falls and hit a more than 5-month high of 3050.4, supported by buying in property and banking shares.
Analysts said banking and property shares were under-valued and had started to attract investors after two days of price consolidation. But uncertainty over key economic data this week was also keeping investors cautious and volumes low. Chinese consumer inflation for March was expected to be above 5 percent, which may push the government to implement more tightening policies.
HSBC said in a report that China was likely to raise banks' reserve requirement ratio (RRR) by 100 basis points in three months, and the consumer price index would hover around 5 percent for several months, the China Securities News said. China is due to release quarterly consumer inflation and gross domestic product data on April 15. Steel makers came under profit-taking pressure from investors. Anyang Iron & Steel lost 2.9 percent, while Wuhan Iron and Steel was down 2 percent.
But Laiwu Steel and Jinan Iron and Steel jumped to their 10 percent daily limit as they proposed a share swap deal to form a combined entity.