Sinopec leads slide in H shares after Premier Wen's remarks about keeping controls to cool economy Hong Kong stocks yesterday erased modest gains from the previous two sessions as some investors cut their positions on index heavyweights ahead of today's budget speech and an expected interest-rate increase by local banks. Premier Wen Jiabao's comments that it was too early to relax the macroeconomic controls in the mainland also led to further selling of Chinese stocks, pushing the H-share index lower for the fourth straight day. China Petroleum & Chemical (Sinopec) led the decline despite the Nymex crude-oil futures price breaking above US$55 per barrel at one point during the Asian trading day. Brokers said investors continued to prefer PetroChina, which helped that counter close unchanged. 'The volumes are okay, but investors don't have enough confidence to get back in,' one retail broker said. 'However, a lot of them don't want to sell either so the market is just drifting sideways.' Ben Kwong Man-bun, associate director of KGI Asia Securities said: 'Most players are either doing some rotational buying, or taking profits on companies that have already announced positive earnings. It's all very short-term trading behaviour.' He projected that the Hang Seng Index would continue to hover between 13,700 and 14,000 in the near term as investors tried to gauge the potential market impact of a rise in Hong Kong lending rates, which some believed could come as early as this week. The 2005-06 budget is expected to contain little market-moving news, although investors will be watching for the fourth-quarter economic growth numbers that are likely to be included in the speech. The Hang Seng index fell 0.65 per cent, or 90.1 points, to 13,816.77. It had added 0.36 per cent in the previous two days. The H-share index fell 1.59 per cent, or 79.59 points, to 4,920.25. Turnover improved to $19.46 billion yesterday from $14.86 billion on Monday and last week's daily average of $18.7 billion. 'Some of that volume was attributable to futures-linked trading with a tug-of-war going on between the bulls and the bears. Today the bears won,' Mr Kwong said, noting that index heavyweights HSBC, Hutchison and the mainland mobile operators contributed the biggest losses. The March Hang Seng Index futures contract fell 146 points to close at a 146-point discount to the underlying index. Just under half of that discount accounts for HSBC's final dividend and could disappear when the bank goes ex-dividend today. But that it widened from 90 basis points on Monday was a bearish sign, brokers said. HSBC fell 0.39 per cent to $128 and Hutchison dropped 1.47 per cent to $67, while China Mobile slid 0.57 per cent to $25.95 and China Unicom declined 3.08 per cent to settle at $6.30. Mainland-backed conglomerate Citic Pacific lost 1.08 per cent to $22.95, despite reporting a 175 per cent surge in net profit for last year. It had gained strongly in the five days leading up to the report. Chairman Larry Yung Chi-kin projected a 10 per cent rise in profits this year, saying the company was planning to expand further in the property, steel and power sectors. Citic also intended to team up with retail giant Wal-Mart to open hundreds of stores in China in the next few years, he said. But some analysts were unimpressed. 'The problem with these [red-chip conglomerates] is that they are always latecomers. Now they say they will get into retailing at a time when we are pretty much at the end of the cycle,' said Herbert Lau Chung-kwan, head of research at Celestial Asia Securities. 'The management lacks focus on their corporate strategy and, until they find a successful business path, the stock is not going to be very attractive.' New World Development bucked the profit-taking trend by gaining 1.32 per cent to $7.65 after saying its interim profit had surged 378 per cent. Among the H shares, Jiangxi Copper lost 2.79 per cent to $4.35 and Aluminum Corp of China fell 1.55 per cent to $4.75. China Telecom slid 3.54 per cent to $2.725.