Hong Kong shares reversed early losses to end higher on Monday, powered by a surge in China Mobile, but gains were capped by chart resistance ahead of a slew of corporate earnings this week. China Mobile surged to its highest since August 2009, after HSBC upgraded the Hong Kong-listed shares of China's largest mobile operator from neutral to overweight, raising its target price by 25 percent to HK$100.
The stock rose 3.9% to HK$87.45. The telecom company's gain outweighed weakness in consumer and railway-related stocks in Hong Kong. The China Enterprises Index of the top mainland listings in Hong Kong lost 0.3 percent, while the Hang Seng Index rose 0.2 percent to 21,134.18 points. It was stymied by 21,200, a level it briefly tested on Friday.
Mainland Chinese markets were weaker, with the Shanghai Composite Index slipping 0.2 percent to 2,434.9, moving further below 2,440, technical resistance it tested on Friday. Turnover on the Hong Kong main board slumped to its lowest since January 16, while in Shanghai, A-share turnover rose for a third-straight session to its highest in a week.
"We are in a month of consolidation after the rally in the first two months of the year," said Grace Tam, a Hong Kong-based equity strategist with J.P. Morgan Asset Management, adding that investors willing to take on more risk will return after the earnings season. "Investors are still positioned quite conservatively, with those who missed the rally looking for good entry points to ride on the next one," Tam said. She said that dips in most Chinese consumer stocks are good buying opportunities. On Monday, investors took profits in Chinese consumer names that outperformed last week. Footwear retailer Belle International Holdings Ltd lost 1.3 percent after surging 10.3 percent last week.
In Hong Kong, China Rail Construction Corporation Ltd and China Railway Group Ltd ranked among the biggest percentage losers, diving 7.3 and 5.4 percent, respectively. The news also hit Chinese developers hard in the mainland with high-speed railway seen as a crucial driver of demand and growth for property in frontier cities and towns.
The Shanghai property sub-index was a standout underperformer among sectors, down 1.9 percent. Poly Real Estate was among the top drags on the Shanghai Composite, down 3.9 percent.
Shenzhen-listed China Vanke, the mainland's largest developer by sales and scheduled to post its earnings report for 2011 later on Monday, shed 2.9 percent. China Mobile, after the HSBC upgrade, soared in almost triple its 30-day average volume. HSBC analysts said in a note to clients on Monday that the integration of chips that support both China Mobile's 3G and 4G standard in mass-market handsets will level the playing field in China, removing any perceived advantage Unicom was believed to possess last year.
On Friday, Goldman Sachs upgraded China Mobile, which sent the stock up 4 percent that day. For the year, China Mobile is up 15.2 percent, while smaller rival China Unicom is down 15.3 percent - a stark reversal from 2011. The Chinese telco sector was generally a popular defensive play among investors last year as the Hang Seng Index slumped 20 percent, but China Unicom surged 47 percent then while China Mobile slipped 1.7 percent.