Hong Kong and China shares fall

Hong Kong shares fell for a sixth straight session on Thursday, mainly because of weakness in banking stocks, but closed well above the day's lows after a rally in property stocks on another strong land auction. Despite Chinese banks largely trading at valuations well below their historical levels, market players were positioning for further weakness as reflected in the steady build-up of short positions in the sector this week.
Traders said a short squeeze looked likely. "The recent share performance of Chinese banks has been a tug of war between good earnings visibility and macro overhangs," said May Yan, a Hong Kong-based banking analyst at Barclays Capital. The benchmark Hang Seng Index fell 0.2 percent to 22,609.8. In a bearish sign for the near-term outlook on the market, turnover rose to its highest level this week with selling in banking shares accelerating as losses deepened.
China Construction Bank Corp, down 1.9 percent on the day and the biggest drag on the Hang Seng, has seen short-selling as a percentage of total turnover tick up to about 12 percent of total traded value over the past two days. That compares with 5.4 percent in the past week.
The tick higher in short-selling coincided with a Reuters report about a plan to clean up local government debt, a section of lending that many market players saw as a risk for bank balance sheets. The property sub-sector was a relative outperformer in the weak overall market, up 0.8 percent. Shares of Cheung Kong Holdings, a bellwether of the local real estate market, closed up 1.0 percent after posting the winning bids on both plots of land sold in the auction on Thursday.
The benchmark Shanghai Composite Index closed down 1.7 percent to 2,703.3 on Thursday, its lowest in 4-1/2 months, pushing it further towards 2011 lows, recorded in January. Industrial and Commercial Bank of China (ICBC) was its biggest drag, losing 1.1 percent on the day, its third straight session of losses.
The A-share listing of China's biggest lender has lost 6.2 percent since hitting its 2011 peak in mid April, but is outperforming both the Shanghai financial sector index and the Shanghai Composite, down 13.9 and 11.5 percent over the same period respectively. The bearish market mood magnified a plunge on the Shanghai B-share market, down almost 8 percent on the day, as it came under pressure from the country's plan to launch an international board possibly later this year, traders said.