Hong Kong shares inched up 0.1 percent on Tuesday, with the benchmark index barely holding on to a gain at the end of a choppy day on which turnover slumped to its lowest in 2011. This trend is likely to continue into year's end with investors defensively positioned as the eurozone debt crisis lingers and growth in the Chinese economy slows.
On Tuesday, the Hang Seng Index finished at 18,080.2, just above the 18,000 level that it had hovered around the past four sessions. The China Enterprises Index of the top mainland listings in Hong Kong also gained 0.1 percent. The financial sector was a relative outperformer, with the Hang Seng financial sub-index up 0.3 percent. Industrial and Commercial Bank of China (ICBC) was among the top boosts to the Hang Seng, gaining 1.1 percent.
"If you assume the Chinese economy is slowing but not due for a hard landing, then I think Chinese banks are the pick of the crop among large caps," said Linus Yip, an equity strategist with First Shanghai Securities in Hong Kong. Continuing concerns about their exposure to bad debts in the mainland, mainly to local governments and the property sector, have kept many investors away despite attractive valuations.
Valuations were driven to historic lows by a heavy selloff in the third quarter as the eurozone debt crisis and signs of a possible slowdown in the US economy intensified fears of a hard landing for China. Shares of ICBC, China's largest lender, have gained 21 percent this quarter, lifting them off record low valuations, but the stock is still down about 20 percent in 2011. At present, ICBC is trading at 5.8 times forward 12-month earnings, a 47 percent discount to historic levels, according to Thomson Reuters StarMine.
Hang Ten Group Holdings Ltd was a standout on a slow day, jumping more than 55 percent to a one-year high after privately held Li & Fung (Retailing) Ltd, a sister company of listed trading company Li & Fung Ltd, offered to buy the apparel and accessories retailer for HK$2.7 billion ($347 million).
Major shareholders, including YGM Trading Ltd, representing an aggregate 69.06 percent of Hang Ten had accepted the offer, Hang Ten said in a filing to the Hong Kong bourse. YGM rose 6.8 percent. In Shanghai, trade was also choppy largely due to weak A-share turnover. The Shanghai Composite Index reversed early gains to finish down 0.1 percent at 2,215.9 points.
Market watchers expect the Shanghai Composite could now see near-term support at about 2,200, the 76.4 percent Fibonacci retracement of its rise from its 2005 low to 2007 peak and a level it has now finished above for three straight sessions. On Tuesday, weakness in financial shares outweighed strength in property ones. The Shanghai financial sub-index declined 0.3 percent, while a similar gauge for the property sector gained 0.1 percent.
ICBC was the top drag on the Shanghai Composite, down 0.5 percent. Citic Securities, China's biggest-listed brokerage, lost 1.9 percent while Bank of China inched down 0.3 percent. Chongqing Brewery slumped a maximum 10 percent for a ninth straight session, to hit its lowest since May 2010. It has lost more than 61 percent since resuming trading on December 8 after an eight-day suspension. The Shanghai Composite Index and the Hang Seng Index rank among the worst performers in Asia in 2011, each down more than 21 percent.