HONG KONG, June 6: Hong Kong shares were headed for a sixth loss in seven days on Thursday, with mainland Chinese markets also weaker, as investors remained concerned about a possible tapering of the US Federal Reserve’s bond buying programme.
Some investors were, however, considering a return to cyclical counters to benefit from a near-term rebound, with offshore Chinese indexes having fallen up to 8 percent from mid-May highs, traders said.
At midday, the Hang Seng Index was down 1.2 percent to 21,814.7 points, languishing at its lowest since April 23. The China Enterprises Index of the top Chinese listings in Hong Kong fell 1.3 percent.
The Shanghai Composite Index and CSI300 of the top Shanghai and Shenzhen A-share listings each shed 0.8 percent. Both onshore Chinese indexes have fallen almost 3 and 4 percent from end-May highs.
‘It’s difficult to get any clarity on the Fed at the moment, but valuations for some counters are starting to look quite positive,’ said Wang Aochao, UOB Kay Hian’s Shanghai-based head of research.
‘Dividend plays are not quite the flavour at the moment, so investors might do well to roll into some beta plays to ride on any short-term rebound. The risk, of course, is that bad turnover will do them in,’ Wang added.
A catalyst could come later this week, with the U.S. Non-farm payrolls report due on Friday followed by a slew of China May economic data for May including trade, inflation, urban investment, industrial output and retail sales over the weekend.
COAL, ALUMINIUM
With coal prices seen to have stabilised in the short term, some beaten-down Chinese coal stocks could be worth a second look, Wang said.
Yanzhou Coal slid 1 percent on Thursday and is now lingering at its lowest since April 2009. Short selling averaged about 21 percent of its total daily turnover in May, suggesting that the trade could be getting too crowded.
Down 41 percent in 2013 after suffering steep losses in the previous two years, it is now trading at 0.6 times forward 12-month price-to-book multiple, a 63 percent discount to its historical median, according to Thomson Reuters StarMine.
The longer term prognosis on the Chinese coal sector, though, remains one of consolidation as real demand sags. That could well accelerate as China’s new leadership steps up the fight against inflation.
Aluminum Corporation of China (Chalco) fell 2.7 percent in Hong Kong and 0.5 percent in Shanghai after it announced plans to temporarily cut 380,000 tonnes of annual capacity, representing 9 percent of its annual output of primary aluminum products last year.
Link Real Estate Investment Trust (REIT), a high dividend yielding counter that has benefited from waves of central bank easing, sank into negative returns for the year after a ratings downgrade by Citi analysts.
Gains in share prices are likely limited on growing expectations of a rise in interest rates, they said in a note. Link REIT fell 2.5 percent and is now down 0.3 percent in 2013 after posting double-digit gains in the previous four years.
Zoomlion jumped 4.2 percent in Shenzhen and a more modest 1.2 percent in Hong Kong and percent after China’s second-largest construction equipment maker said its executives had bought more than $22 million worth of A-shares in a show of confidence. (agencies)
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