Chinese shares soar, Hong Kong slips

Chinese shares rose to a six-week high on Tuesday on a late rally in utilities and coal-related stocks, and could build on gains if investors venture back into cheapened bank shares. Sagging bank stocks weighed on Hong Kong's benchmark index, though the losses were limited by resilient mainland property stocks.
Chinese shares have risen around 7 percent from a nine-month low hit last month after Premier Wen Jiabao's comments that inflation was under control raised hopes that the government would ease up on its monetary tightening policy. The Hang Seng Index finished down 0.1 percent at 22,748.0 points, while the Shanghai Composite Index cut early losses to edge up 0.1 percent to 2,816.4 points on turnover of 128.2 billion yuan, a third higher than its 20-day moving average.
Both benchmarks stayed above its 250-day moving averages, seen as offering support in the near term. The country's largest lender, Industrial and Commercial Bank of China (ICBC), was among the biggest weight on benchmark indices, declining 0.5 percent in Hong Kong and 0.2 percent in Shanghai.
Also weighing on banks was a statement from ratings agency Moody's, which said that China's local government debt burden may be 3.5 trillion yuan ($540 billion) larger than auditors estimated. But with banking shares already trading at valuations close to the trough levels seen during the financial crisis of 2008, analysts said the sector presents a good buying opportunity going into the second half of the year.
"The headlines are probably not going to get better in the coming weeks or months and that's going to be an overhang but fear typically generates very good value opportunities," said Mike Werner, a banking analyst at Bernstein Research in Hong Kong, who recommends buying the larger banks. In Hong Kong, Chinese property plays bucked the market with gains on the day. China Resources Land Ltd and Chinese Overseas Land & Investment Ltd were the top two gainers among Hang Seng index constituents, up 3.4 and 2.8 percent respectively in solid turnover.
"There is a need to balance the enforcement of home purchase restrictions...as overly tight policies could affect the progress of social housing projects as local governments fall short of cash," Samsung Securities property analysts said in a note on Tuesday. China Resources Land, already up almost 7 percent in the year to date, was one of its two top buys. While it is not the cheapest among its peers, Samsung analysts expect the company to benefit from any relaxation of restrictions by local governments as they struggle to find cash to fund its social housing initiatives.