Banks lift Hong Kong, China shares

Bank stocks helped Chinese stocks post a third consecutive week of gains on Friday and extend their recovery from nine-month lows, with retail investors bargain hunting ahead of China's June inflation data due on Saturday. Thin trading volume and lack of participation by institutional investors, though, suggested equity markets in China and Hong Kong may struggle to keep a rally going next week, without a further pick-up in bank stocks.
Shares of banks, though trading at very low valuations, have been dogged by speculation they may need to take write-downs and even raise capital if loans to Chinese local governments go bad. "The volumes today in A-share banks do not suggest that big investors are buying into banks with any conviction," said Cao Xuefeng, head of research at Huaxi Securities. "It's more likely smaller investors are buying on the dip after the edginess of the last few days."
The benchmark Hang Seng Index gained 0.9 percent on the day and 1.5 percent on the week to close at 22,726.4 points, while the Shanghai Composite Index closed up 0.1 percent on the day and 1.4 percent on the week to 2,797.8 points. China's annual inflation is expected to accelerate to 6.3 percent in June from 5.5 percent in May, according to a Reuters poll of 28 economists, while annual GDP growth in the second quarter may have eased moderately to 9.4 percent from the sizzling 9.7 percent pace of the first quarter.
Financial names are still down more than 10 percent since hitting highs in April, but have rebounded almost 2 percent this week despite coming under some fresh selling pressure. Singapore's Temasek sold a sizable chunk of its H-share holdings in Bank of China and China Construction Bank late on Tuesday, while Moody's warned that Beijing may have underestimated the local debt outstanding by $540 billion.
Agricultural Bank of China (AgBank), which rose 1.3 percent in Hong Kong and 0.8 percent in Shanghai on Friday, could turn out to be the weakest link among the "Big Four as it is seen as the most exposed to local government debt among the larger banks. Moreover, $6 billion worth of shares could potentially hit the market when the lock-up period for cornerstone investors expires next week. China Overseas Land and Investment gained almost 2 percent on the day after it said property sales in June doubled to HK$12.1 billion ($1.55 billion) from a year earlier.