Onshore China shares had their biggest rises in more than three years on Friday fuelled by speculation of state-backed buying in onshore markets, as indexes closed above key chart resistance levels, indicating further gains ahead. Hong Kong markets were lifted to a 16-month high, after a manufacturing survey by HSBC raised hopes for a stronger recovery in the world's second-largest economy.
--- Hang Seng Index at 16-month peak
The Hang Seng Index rose 0.7 percent on the day and 1.9 percent on the week to 22,606 points, its highest close since August 1, 2011. Stiff chart resistance looms at around 22,800, peaks in July and August 2011. The China Enterprises Index of the top Chinese listings in Hong Kong jumped 1.5 percent on Friday and 3.6 percent this week. In the mainland, the CSI300 Index of the top Shanghai and Shenzhen listings surged 5.1 percent on Friday and 4.9 percent for the week. The Shanghai Composite Index was up 4.3 percent on the day and also for the week.
While markets moved higher immediately following the flash PMI survey, talk among traders that large institutions were active buyers of domestic shares triggered a sharp rally with both mainland indexes punching above their 100-day moving average for the first time since mid-2012. "With just over 10 trading days remaining in the year, this is the last window for fund managers to step into the market to ride on this rally, particularly since most of them were underweight equities," said Hong Hao, chief strategist at Bank of Communications International Securities.
Investors will be watching an annual policy-setting meeting over the weekend to chart China's 2013 economic course for any more signs of an improving outlook. Friday's gains in Shanghai came in the highest volume since March 14 as the financial sector led the charge up the charts. Hong Kong turnover was the best this week.
On Friday, the CSI financial sub-index soared 6.7 percent, with Industrial and Commercial Bank of China (ICBC) rising 3.8 percent in Shanghai and 0.2 percent in Hong Kong. Shares of Ping An Insurance in Shanghai had their best day since July 2009, surging 8 percent to extend 2012 gains to 21.8 percent. Its Hong Kong shares were up 3.5 percent. The strong showing in the A-share market also helped Chinese brokerages. Haitong Securities jumped 5.6 percent in Shanghai and 6.8 percent in Hong Kong, while Citic Securities spiked 7.4 percent in Shanghai and 4.8 percent in Hong Kong.
Bank of Nanjing, GF Securities and New China Life Insurance all surged the maximum 10 percent in Shanghai and Shenzhen. Mainland investors were also encouraged by several regulatory moves. The state-run China Securities Journal reported on Friday that the China Securities Regulatory Commission is encouraging the more than 800 listing applicants to seek alternate sources of funding in the bond market.
New rules announced on Thursday will allow fund houses to seek regulatory approval for any number of mutual fund products they wish to sell at any time with the securities regulator responding within 20 days. The CSI300 and Shanghai Composite indexes, both of which fell in 2010 and 2011, are down 0.4 and 2.2 percent respectively this year. This compares to the 22.6 percent rally for the Hang Seng Index and the China Enterprises Index's 13.8 percent jump. Friday's gains were the biggest daily one for both mainland indexes since October 2009. They helped onshore Chinese shares outperform offshore peers for a second-straight week.