Hong Kong shares gave up early gains to close nearly unchanged in thin, pre-holiday trade yesterday, with red chips outperforming. The Hang Seng Index jumped to 11,081.58 in morning trade but closed just 1.99 points up at 10,942.2. The red-chip index gained 1.45 per cent to 799.68 points, as investors concentrated on the largest constituents including Beijing Enterprises, China Resources, Shanghai Industrial and Legend. 'China funds have been buying aggressively these large or medium-cap stocks,' Core Pacific-Yamaichi research director Alex Tang Yee-yuk said. Red chips were beginning to look attractive relative to Hang Seng Index constituents, analysts said. Value Partners assistant fund manager Norman Ho said: 'China shares are quite undervalued whereas the blue chips are trading at a high-teen price-earnings ratio.' China Telecom rose 2.38 per cent to $12.90. The stock has taken a beating recently over concerns its competitive position in the mainland mobile telephone market would be undermined as Beijing prepared for entry to the World Trade Organisation. In particular, news of an opening of the market to CDMA (code division multiple access) users has knocked nearly 10 per cent off China Telecom's share price since the middle of last month. Shenyin Wanguo Securities research head Phillip Chan said: 'There has been a consensus building that China Telecom is approaching a trough because it was sold down very heavily . . . after the announcement that they were going to break up the monopoly.' Yesterday, an expected announcement from the mainland's second-biggest telecommunications group China Unicom - over deals with overseas CDMA equipment providers - turned out to be a non-event. China Unicom would reportedly invest very little in the CDMA cellular equipment. ABN Amro analyst Joe Locke said: 'I'm not surprised. This CDMA story never made sense - CDMA would compete with China Unicom's own network. It [CDMA] may have been on somebody's WTO wish list.' Hutchison Whampoa fell 0.81 per cent to $61 after announcing the US$243 million purchase of a 51 per cent stake in Jakarta's main container port operator. Some brokers awaited an adjustment in the index. Celestial Asia Securities director Josephine Hui Suet-ming said: 'Everybody is waiting for the correction. 'The market can have a rally in April but it should have some correction first.'