China shares in Shanghai and Hong Kong fell on Monday as investors hammered companies reporting weak or forecast-meeting results, while a late jump in HSBC helped the Hang Seng index offset some of those losses and end higher. HSBC Holdings Plc, Europe's largest bank, jumped in late trading after European stock futures opened higher, helped the Hang Seng, snapping a three-session losing streak, ending up 0.5 percent at 19,486.9 points.
"Investors are not going to enter this market if there is no clear direction," said Ben Kwong, chief operating officer at KGI Asia in Hong Kong. "It does seem that investors are also pricing in some kind of a broader China slowdown at the moment." China Construction Bank Corp, the world's No 2 bank by market capitalisation, was the Hang Seng's top drag, down 1.3 percent despite reporting a forecast-beating 31 percent rise in first-half earnings, helped by strong growth in financial advisory services.
The Shanghai Composite Index ended down 0.7 percent at 2,515.9 points, a 13-month closing low as A-share turnover neared August lows. The China Enterprise Index of top Hong Kong-listed Chinese companies, also known as H-shares, lost 0.3 percent. China Enterprises Index's drop in August alone has taken it below the levels seen at the trough of the 2008 financial crisis. Traders in Hong Kong said fund managers were probably waiting out the interim reporting season and wary of any potential revisions to earnings projections which could render valuations less attractive.
CCB is trading at 5.8 times forward 12-month earnings, the lowest-ever valuation for its H-shares in Hong Kong, according to Thomson Reuters Starmine data. But investors have been ignoring low valuations for months, chiefly because of concern over bad loans and talk that cornerstone investors such as Bank of America-Merrill Lynch are in talks with Middle East wealth funds to cash out. After markets closed on Monday, CCB said it is in talks to extend its co-operation with its American partner until the end of 2012, a move that could potentially lift interest in CCB.
Yanzhou Coal Mining Co Ltd was the largest percentage loser among H-share stocks, after reporting weaker-than-expected first-half earnings. HSBC downgrading the stock to neutral from overweight, cutting its 2011 earnings-per-share forecast by 15 percent. In the mainland, losses in several large-cap cyclicals were the top drags on the Shanghai benchmark, led by Industrial and Commercial Bank of China Ltd (ICBC) and PetroChina. Monday's losses come amid tigher liquidity conditions after the country's money market rates jumped 49 basis points on Monday, following a steep rise late last week, as a chunk of funds from banks and other institutions were put aside for subscriptions for GD Power's convertible bond.
Cement issues, outperformers this year, extended losses after mainland media reports on Friday said cement prices in eastern China unexpectedly slipped in July. Anhui Conch Cement Co Ltd lost more than 5 percent in Shanghai, plunging to a six-month low. Its Hong Kong shares lost 3.6 percent.