Hong Kong and China shares started December strongly, surging in robust volumes on Thursday after Beijing signalled a policy shift late on Wednesday by cutting reserve requirement ratio for commercial lenders for the first time in three years. The move offset - for now - worries spawned by the first contraction in China's factory sector since February 2009 on the back of weakening demand both at home and abroad.
The Hang Seng Index had its best day since October 6, closing up 5.6 percent at 19,002.3 points. The China Enterprises Index of the top mainland firms listed in Hong Kong climbed 8.1 percent - its best one-day performance in nearly three years.
The Shanghai Composite Index ended up 2.3 percent, underperforming some Asian peers in percentage terms but still producing a gain bettered only four times this year. It ended at 2,386.7 points in the highest A-share turnover in about a month. China Life Insurance was its top boost, gaining 7.9 percent in more than three times its 30-average volume. Traders attributed part of Thursday's bounce in Hong Kong to short-covering, particularly in cyclical stocks such as shippers and mining companies whose fundamentals remain weak.
Still, shares in sectors most sensitive to the domestic market in China, such as life insurers, banks and brokerages, saw the sharpest moves on above-average volumes as some funds took the opportunity to buy in anticipation that further easing in China would lift the mainland markets.
"Stocks are cheap and earnings expectations low, which means there's room for upside surprise, making this a good time to enter the market," said Emerson Yip, a Greater China fund manager with J.P. Morgan Asset Management Despite slowing in the afternoon, turnover in Hong Kong was the highest since October 28, with mainland property counters among the top traded names. Agile Property was up nearly 15 percent in almost triple its 30-day average volume.
China Overseas Land & Investment Ltd gained 13.2 percent, while in Shanghai, Poly Real Estate Group Co Ltd jumped 5.7 percent in volume that was more than quadruple its 30-day average. Data on Thursday showed average home prices in 100 Chinese cities slipped 0.3 percent in November, the third month of a modest pullback in the face of government measures to curb an exuberant housing market.
Declining home prices and sales numbers are putting so much pressure on liquidity and margins at Chinese property developers that smaller companies could be pushed to the brink of collapse. Shares of property developers considered to be high quality have been among the most shorted stocks in the past few months. Excluding Thursday, short-selling in China Overseas Land has dipped below 10 percent of its daily turnover only twice in the last 30 days. It is currently trading at 7.5 times its 12-month forward earnings, a 42.2 percent discount over its 10-year median, according to Thomson Reuters Starmine data.