Hong Kong shares staged a mild rebound on Thursday, as financials continue to draw in investors, while China stocks finished lower, weighed by small-caps which are seen as more vulnerable to policy tightening. Higher oil prices pushed up Hong Kong's energy counters while valuations attracted investors to financials, in particular, large cap banking shares helping to support the Hang Seng which closed up 0.7 percent.
HSBC's 1.7 percent gain was the top boost on the index, followed by oil major CNOOC which rose 2.9 percent. The Hang Seng stayed below its 200-day average, currently at 23,026,5, for the fourth successive day, the longest such streak this year. Turnover, at under HK$60 billion, is headed for its worst week this year with the benchmark poised for its worst monthly returns since May last year, suggesting that further gains may be a struggle for the Hang Seng .
While weak markets in Shanghai, hobbled by liquidity concerns and now trading in negative territory on the year, have kept investors wary, analysts say large cap banking shares are trading at attractive valuations and could effect a turnover in the markets in the run up to half yearly earnings numbers.
"These are the least leveraged banks in the world as a group in China," said Paul Schulte of CCB International in a Reuters Insider interview, adding that this was true especially of the large banks. "So the capacity of these banks, either to create fresh lending or to create new loans a enormous," said Schulte. ICBC, up 0.7 percent in Hong Kong, trades at 8.4 times its forward 12-month earnings forecasts which is close to its lowest ever, according to Thomson Reuters Starmine.
At the same time, over the past month 10 analysts have raised their earnings forecasts for the year by an average of 3.8 percent, Starmine data showed, while shares have fallen 7 percent over that period. China Construction Bank shares rose 0.4 percent while Bank of China recorded a modest 0.2 percent gains. China shares surrendered early gains to end down for a sixth straight session on Thursday as small cap indices underperformed the broader market.
The Shanghai small cap index finished down 0.8 percent, while the CSI500 index was down 1.0 percent. Paper and paper pulp producer Henan Yinge Industrial Investment lost 9.3 percent the second-biggest weight on the small-cap index behind Huaneng Power International, which shed 1.7 percent. Financial stocks outperformed on Thursday helping to limit declines for the broader market.
ICBC shares in Shanghai were the biggest support on the Shanghai Composite, gaining 1.2 percent. The benchmark Shanghai Composite Index closed down 0.2 percent on the day to 2,736.5, a fourth consecutive 4-month low. Any near-term rebound is seen capped at its 250-day moving average at 2,779.3, with support seen at 2,650, its 61.8 percent retracement from the benchmark's November 2010 high. A-share turnover on Thursday picked up marginally from Wednesday, but at RMB 92.2 billion, is still some 29 percent below the 2011 average, currently at RMB 130.1 billion.