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.