Hong Kong, China shares down

Hong Kong and Shanghai shares closed lower on Friday as investors remained unconvinced that a possible peak in consumer price rises would mean relaxation in Beijing's monetary tightening. Both indexes posted a weekly loss on poor volumes, pointing to low investor confidence due to the persistent uncertainty about Europe's debt crisis as well as the US economy.
China's inflation, which fell to 6.2 percent in August, pulled back in August from a three-year high while economic activity slowed. "There's little comfort from a lower CPI number," said a Hong Kong-based trader at a large Asian brokerage, adding while the People's Bank of China is unlikely to keep tightening, price pressures will remain for at least the next three months and leave little room for China to relax policy in the near term.
Inflation in China remains well above the government's target of 4 percent. The benchmark Hang Seng index closed down 0.2 percent on Friday and down 1.8 percent on the week as investors continued to sell into rallies and park funds in defensive stocks that outperformed broader markets this year. The year's two top performing benchmark constituents China Unicom and Hong Kong utility Power Assets, both ended the day and week higher.
Turnover on the Hong Kong exchange, which been sliding for the past four sessions, fell to this year's low on Friday with just two of the 46 stocks in the Hang Seng trading above their average 30-day traded volume. The light trading activity, ahead of holidays in Hong Kong next week, and continued gains in defensives such as China Unicom suggested long-only funds were holding back on putting money to work on large-cap cyclicals.
China Unicom, the country's second-largest mobile operator, is up 53 percent this year compared with the Hang Seng's 13.8 percent decline. Power Assets is up 25.1 percent. On the mainland, the Shanghai Composite closed little changed but finished 1.2 percent lower on the week.
The Shanghai Composite has remained a laggard in Asia since last year, down 24 percent since January 2010 compared with a 3 percent gain for the MSCI Asia ex-Japan index. Over the same period, the Hang Seng index is down 8.8 percent. Alan Lam, Greater China analyst at private bank Julius Baer, said the A-shares should outperform their Hong Kong-listed peers as they remain relatively insulated from global investment flows. The Shanghai Composite was trading at its lowest valuations in terms of price-to-earnings as well as price-to-book ratios since 2005, said Lam, and the eventual relaxation in China's monetary policy would be the catalyst.