Hong Kong shares fell on Thursday, dragged lower by HSBC Holdings and local property names even as mainland markets strengthened in healthy volume as more investors foresaw a year-end rally in Shanghai. For a second day, exchange-traded funds in Hong Kong that provide outsiders the most direct exposure to the mainland markets outperformed.
Foreign investors again bought solid volumes of ETFs, hoping to capture any outperformance of China's domestic stocks over those listed in Hong Kong. Marginal moves by China towards selectively easing policy, such as support for the railway industry and relaxing the tight credit environment for small and medium-sized enterprises, plus signs of ample liquidity in the financial system have brightened the outlook for Chinese stocks.
The Shanghai Composite edged up 0.2 percent to a 1-1/2 month high on the highest turnover in four months. The Hang Seng Index fell 2.5 percent on the day although more than half of the losses stemmed from the 2.9 percent decline in shares of benchmark heavyweight HSBC Holdings.
"The names dragging on the HSI are largely global or Hong Kong ones," said the trader, adding that A-share sensitive sectors were rising on hopes of a policy-induced run up in Chinese shares through the end of the year. Businesses most sensitive to China's domestic stock markets, such as insurers that hold shares in investment portfolios and brokerages, outperformed in Hong Kong. They were led by a 3.9 percent bounce in China Life.
The insurer's Shanghai-listed shares rose 3 percent and gave the benchmark the biggest boost. Given China's low valuations and potential for corporate and economic reform, Chinese stock indices are likely to outperform Asian peers, according to Todd Martin, Societe Generale's Hong Kong-based Asia equity strategist.
The major China-related ETF in Hong Kong, the iShares A50 China tracker, rose 1 percent on 1.9 times its average 30-day traded volume as investors piled in. The premium of the unit's price to net asset value per share grew to more than 7 percent on Thursday from just above 5 percent a day earlier, according to data on the iShares website, suggesting investors were willing to pay up for more direct exposure to mainland markets.
Foreign investors can invest directly in China's domestic markets only via a limited quota sanctioned by the authorities. China's foreign exchange regulator has granted no fresh quotas from early May through September, the longest stretch without any new allocations in about four years. HSBC, Europe's largest lender and the biggest weight on Hong Kong's Hang Seng, saw its stock price slide as the threat of a Greek exit from the eurozone hung over the G20 summit to begin in Cannes later in the day.
Leaders of France and Germany, angered at Greece's shock move to call a referendum on its latest bailout plan, told Prime Minister George Papandreou on Wednesday that Athens would not receive another cent in EU aid until it decided whether it wanted to stay in the eurozone. Also weighing on the Hong Kong market, local developers fell on local media reports that bellwether Sun Hung Kai Properties Ltd had cut prices at one of its new high-end projects in Hong Kong.
Traders also pointed to a Hong Kong government report, which said the value of residential property transactions last month declined 50 percent year-on-year to HK$22.5 billion. Sun Hung Kai fell 3.3 percent, while Cheung Kong (Holdings) Ltd dropped 3.7 percent.