Hong Kong and China shares suffered another weekly loss, but on Friday pared hefty early losses thanks to a recovery in some Chinese bank counters after mainland funding costs fell, easing fears of a broader banking crisis there.
Traders said there was fresh buying in the offshore Chinese market in some of this week’s worst-hit sectors and firms with better balance sheets. Some short covering in index futures and exchange-trade funds (ETFs) also helped.
The Hang Seng Index closed down 0.6 percent at 20,263.3 after starting the day off 2 per cent and below the 20,000-point mark. The China Enterprises Index of the top Chinese listings in Hong Kong slipped 0.3 per cent.
The CSI300 of the leading Shanghai and Shenzhen A-share listings slipped 0.2 per cent, while the Shanghai Composite Index declined 0.5 per cent. Both posted a third-straight weekly loss, sinking 4.1 per cent to the lowest since December 14.
Both Hong Kong indexes had their sixth-straight weekly loss, sliding 3.4 and 4.4 per cent respectively. The H-share index was at its most technically oversold in 15 years, with its relative strength index at 17.7. On the technical momentum indicator, a reading below 30 suggests an index is oversold.
Gains in Hong Kong came in the highest turnover in three months, but much of the bump up was due to passive funds recalibrating positions ahead of a rebalancing of FTSE indexes effective from Monday.
“The bigger picture still remains awful, there’s no need to get too excited about some of the beta gains today,” said Alex Wong, director of asset management at Ample Finance. He said he bought some long positions in high beta names and China telcos for their relatively stronger cash positions.
“The meltdown in the last few days has been quite violent and you have to remember some investors are still very underinvested, so it’s more about pre-weekend positioning,” Wong added.
China banks were broadly weaker in Hong Kong, but pared losses on the day, with the larger ones eking out gains. The weighted average overnight bond repurchase rate – a measure of the cost of funds - fell to around 9 per cent by midday from Thursday’s close of 11.62 per cent.
Some calm returned on Friday after rumours that some major banks needing emergency funding were quelled. There was also market talk the central bank had guided the biggest state lenders to provide more short-term funds to smaller banks.
Shanghai volume improved marginally for a third day, but was still some 18 per cent below its average in the past 20 sessions.
In Hong Kong, Bank of Communication dropped 1.9 per cent and China Minsheng Bank 2.1 per cent. But the country’s two largest lenders, Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) climbed 1.1 and 0.8 per cent, respectively.
In Shanghai, smaller banks produced gains. China Minsheng Bank bounced 1.7 per cent after closing at a two-month low on Thursday. Everbright Bank rose 0.7 per cent.
Shares of Macau casino operator Galaxy Entertainment dived 8.4 per cent, falling further from Wednesday’s record closing high after JP Morgan downgraded the stock from overweight to neutral.
Sector rival Macau Legend Development Ltd postponed an initial public offering expected to raise up to US$786 million (HK$ 6.1 billion), sources said on Friday. This was the third deal to be delayed in Hong Kong in a month.
In Hong Kong, some China coal miners, independent power producers and insurers were among the outperformers on the day. China Shenhua Energy climbed 2.3 per cent, reversing losses after testing a four-year low.
New China Life Insurance (NCI) surged nearly 9 per cent to its highest in two weeks in Shanghai but slipped 0.2 per cent in Hong Kong. Central Huijin, China’s state-owned investment company, bought into the insurer’s A-shares last week.
Huijin said late on Thursday it recently added ETFs in the secondary market. On Monday, it confirmed increasing its stakes in China’s “Big Four” banks and earlier Huijin announced the purchases in Everbright Bank and NCI.
The CSI300 is down 8.1 per cent in 2013 and the Shanghai Composite 8.6 per cent, but they have outperformed offshore China peers, as the H-share index in Hong Kong is down 19 per cent and the Hang Seng benchmark is off 10.6 percent. Both Hong Kong indexes are at their lowest since September.
The Hang Seng China A-H Price Index briefly touched a one-year high on Friday. This suggests A shares were trading at the biggest premium over H shares since June 2012.
“Given this round of tightening may last longer and the domestic macro conditions are generally worse, we will be surprised if HSCE doesn’t re-test its 2011 low (at about 8,102 points) before this round of the sell-off is over,” said David Cui, Bank of America-Merrill Lynch’s China equity strategist in a note dated June 20.
Short selling in Hong Kong accounted for 13 per cent of total turnover on Friday, compared with 15 per cent on Thursday and 13 per cent on Wednesday, versus a historical 8 per cent average.