China shares staged a sharp late-session rally, helping mainland stock indices bounce off multi-year lows, which traders attributed to speculation authorities will take measures to bolster beaten-down markets. Thursday's move on mainland markets lifted Hong Kong's Hang Seng index 1.1 percent with locally listed Chinese shares leading gains. The China Enterprises index ended up 1.5 percent.
In China, the Shanghai Composite rose 2.6 percent to finish the day well above the 2000-point mark. Some investors believe that when the index is below 2000 - as it was briefly on Wednesday, and nearly again early Thursday - there's a big chance authorities will take steps to prop up the stock market. The CSI300 index of top Shanghai and Shenzhen listings ended Thursday up 3.1 percent, with Chinese brokerage stocks the biggest beneficiaries of the rebound.
On Wednesday, both mainland indices had hit their lowest levels since early 2009. Hong Kong and China markets started Thursday on a weak note although some quarter-end adjustments to portfolios by fund managers had spurred a mild, low-volume recovery by midday. Shortly after the lunch break, however, Chinese shares rose sharply on strong volumes sparking a broad-based rally in Hong Kong and lifting other Asian markets.
In Hong Kong, though, short-selling accounted for 10.7 percent of the daily turnover on Thursday, the highest since September 5. This suggests that some investors were betting that the talk about China moves would turn out to just be talk, making shares pull back. Traders attributed Thursday's gains to speculation that the China Securities Regulatory Commission (CSRC), the country's markets watchdog, would announce steps to support beleaguered domestic markets that could include more reforms to initial public reforms.
"This has clearly been viewed positively by the mainland punters," said a Christian Keilland, head of trading at BTIG in Hong Kong, adding that the aggressive buying in the afternoon was consistent with the view that the market would be supported if the Shanghai Composite drops to the 2000 points level. Shares of Haitong Securities rose 6.3 percent while the largest listed broker Citic Securities was up 4.9 percent. Smaller rival Sinolink Securities jumped 10 percent.
Citic shares in Hong Kong were up 3.9 percent. The sharp gains did leave investors vulnerable should the rumours about imminent steps to prop up the markets prove unfounded. The CSRC had a regular meeting scheduled on Thursday, which sparked some talk that the body might curb the number of share issues coming to market, one of several changes many want to see. But a source at the CSRC later told Reuters that reforming the system for initial public offers was not on the agenda.
Property shares were among the top performers with the post-lunch rally helping to extend the morning's gains. Henderson Land rose 2.4 percent while Sun Hung Kai Properties, a Hong Kong bellwether, gained 1.3 percent. Credit Suisse raised its rating on the Hong Kong property sector to "overweight" on Thursday on the back of a pick-up in transaction volumes which, according to the brokerage, has a bigger impact on shares than property prices.
Hong Kong's property sector is considered a key beneficiary of global monetary easing by central banks, partly reflected in the sector's outperformance this month. The property sub-index is up 10.4 percent this month with the biggest gains coming after the US Federal Reserve's announcement of a third round of asset purchases. There was no reprieve on Thursday for Esprit Holdings, with the stock sinking a further 5.7 percent after brokers cut their earnings estimates for the company following disappointing results announced on Wednesday. Citigroup slashed its estimate for Esprit's 2013 earnings by 54 percent. The brokerage has a HK$9.36 target price on the stock suggesting a further 20 percent drop from current levels.