Hong Kong shares eked out their first gain in three days on Tuesday, lifted by defensive stocks, as turnover fell to near 2012 lows ahead of a meeting of central bankers late this week. Mainland Chinese markets, which touched 3-1/2 year lows in the morning, rebounded and outperformed Hong Kong, helped by a strong performance in the steel sector.
Before trading began, Baoshan Iron & Steel (Baosteel) announced plans to buy back up to 5 billion yuan ($786.6 million) of A-shares. The stock surged the maximum allowed 10 percent in Shanghai. Market talk of a similar buyback for China Petroleum & Chemical Corp (Sinopec) spurred a reversal of midday losses on mainland benchmark indices, traders said.
The CSI300 Index of the top Shanghai and Shenzhen listings rose 0.5 percent, while the Shanghai Composite Index gained 0.9 percent although bourse volume stayed lacklustre. The Hang Seng Index inched up 0.1 percent to 19,811.8, holding above its 200-day moving average, now at 19,765.5, a technical level it has closed above on all but one session since July 31.
"Everybody is playing a waiting game now," said Larry Jiang, chief strategist with Guotai Junan International Securities. "Even if they are in the market, it's with a very short time horizon and in stocks that are more defensive." One defensive favourite is China Mobile. The mainland's largest telco rose 0.6 percent to HK$84.05 and was the top boost to the Hang Seng Index.
It has now risen 10.7 percent in 2012. Chart resistance is seen at HK$84.70, the bottom of a gap that formed between August 16 and 17 after investors punished falls in key measures of revenue and profitability in the company's first half earnings. Foxconn International Holdings Ltd (FIH), the world's biggest contract maker of cellphones, dived 8 percent after posting its worst-ever first-half net loss due to dismal orders from clients such as Nokia Oyj, hit by the economic slowdown.
In 2012, Foxconn is now down 47 percent. The Hang Seng Index has gained 7.5 percent. Tuesday's jump at Baosteel, China's largest listed steelmaker, spurred gains in mainland markets for the sector, which is struggling this year due to high inventories amid a slowing economy.
With Tuesday's announcement, Baosteel is among the first to answer a call from the China Securities Regulatory Commission on August 1 for companies with a strong capital base to buy back their shares, one of several moves intended to boost market sentiment. Market chatter about a similar move for Sinopec drove its Shanghai shares up 5.4 percent, with gains accelerating in the afternoon.
Shares of Baosteel, which fell both in 2010 and 2011, are down 7.6 percent in 2012. The CSI300 Index has shed 4.6 percent, this year, while the Shanghai Composite Index is down 5.7 percent. Angang Steel rose 2 percent in Shenzhen, shrugging off a $311 million first half net profit it posted late on Monday. The company had issued a profit warning on July 6.
But Angang shed 2 percent in Hong Kong, where it is now down 31 percent this year. Deutsche Bank analysts said with no sign of recovery for the steel industry, Angang's stock was not attractive, noting the book value of the company "might continue to shrink.