Fresh inflows push China stocks to 7-month high; Hong Kong dips

Tue Jan 15, 2013 9:23am GMT

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* CSI300 +0.7 pct to seven-month high in broad-based gains

* Trading volume strongest since March 2012

* Tally on firm footing as idle money floods market-analysts

* HSI touches 18-month high, then retreats

By Gabriel Wildau

SHANGHAI, Jan 15 (Reuters) - China shares rose to a fresh 7-1/2 month high in heavy trading on Tuesday, with gains spread widely across sectors, as investors grew increasingly confident that the market's recent rally has further momentum.

Hong Kong's benchmark Hang Seng Index touched an 18-month high but closed down 0.1 percent at 23,381.5 points. The China Enterprises Index of the top Chinese listings in Hong Kong edged up 0.03 percent.

The CSI300 index, which tracks the largest listed firms in Shenzhen and Shanghai, rose 0.7 percent.

Analysts said the Shanghai Composite Index, which sailed past the psychological 2,300-point barrier on Monday, could face little resistance until 2,500. The index closed 0.6 percent higher at 2,325.7 on Tuesday.

"Money that was sitting on the sidelines has now been persuaded that the rally is sustainable," said Zhang Weiguang, equity analyst at Shanghai Securities.

The recent rally, which has seen the CSI300 rise by 23 percent since hitting a trough in early December, has been fueled primarily by positive macro-economic sentiment. Data late last week showed stronger-than-expected trade growth and healthy credit creation, analysts say.

But analysts say new institutional money is now flooding the mainland market as investors feel the rally is building up steam. Trading volume on Tuesday was the highest since March last year.

The machinery and equipment sector led the index in the afternoon, while the financial sub-index, which had led the recent rally, closed the day up by only 0.3 percent.

Sany Heavy Industry gained 2.9 percent, while power transmission equipment supplier TBEA Co. gained 10 percent.

Metals and minerals manufacturers also fared well, with Jinduicheng Molybdenum gaining 3.3 percent.

The increased appetite for shares has also been supplemented by money market rates that have fallen sharply since the beginning of the year.

The benchmark weighted-average seven-day bond repurchase rate stood at 2.81 percent on Tuesday, well below the 3 percent mark that generally signals loose conditions. That's down from 4.58 percent at end-December.

Also supporting the market were comments from the chairman of China's securities regulator on Monday that quotas for foreign investment, which currently total only about 1.5 percent of total market capitalisation, could be raised by nine or 10 times.

HONG KONG SHARES SLIDE

Hong Kong shares ended slightly easier on Tuesday as the market took a breather after the stocks touched their highest level since June 2011 following the rally in mainland markets.

"The market was consolidating, with the top side seen capped at around 23,800 level," said Steven Leung, a director at UOB Kay Hian.

"We don't see much pressure for a pull back in the market with sufficient liquidity around. Investors are waiting for fresh incentives to go into the market again," Leung said.

Investors will be looking for hints on policy direction from the maiden policy address by the territory's new chief executive, Leung Chun-ying, on Wednesday, brokers said. The red-hot property market had been a particular point of interest.

Shares of China Taiping Insurance Holdings Co Ltd rose 6.2 percent after the China's fifth-biggest mainland insurer by market capitalisation said it was considering acquiring an additional 25 percent stake in Taiping Life Insurance from its parent company.

Shares of Li & Fung Ltd remained under pressure after Moody's cut its outlook on the global supply chain manager's credit rating to negative, and Standard & Poor's Ratings Services put the company's "A-" Rating On CreditWatch Negative, sending the stock to its lowest since August 2011.

Li & Fung ended down 0.5 percent, after tumbling 15 percent on Monday.

Investors questioned the credibility of earnings guidance from Li & Fung after it flagged a steep profit fall just two months after an analyst briefing.

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