Hong Kong shares edged higher on Thursday after hitting a two-year low in the previous session, in a relief rally on hopes of further support for Greece, although low volumes and strong gains in defensive stocks pointed to lingering caution. HSBC and insurer AIA Group, which suffered sharp losses earlier this week, led the benchmark higher. The Hang Seng Index closed up 0.71 percent at 19,181.5 points, while turnover on Thursday dipped below its 20-day average.
"I don't think we are anywhere near the bottom yet, risk aversion is still very palpable despite the rally," said Hong Hao, a global strategist at CICC in Beijing. "In a bear market, it's a good idea to get out on rallies." The lingering European debt crisis and slowing global growth have combined to hammer global markets since late July, with market watchers unconvinced by the latest rhetoric of European leaders.
A Greek government official said after French and German leaders urged Greece's prime minister late on Wednesday to meet the terms of its new bailout, that Athens looked set to get approval from EU and IMF inspectors for the issue of its next tranche of debt. With little prospect of the European debt crisis resolving any time soon, CICC is advising clients to buy into defensive stocks such as telecommunications and utilities, which rose on Thursday, despite their higher valuations.
Power Assets Holdings Ltd, up nearly 30 percent this year, gained 3.9 percent. China Unicom (Hong Kong) Ltd was up 2.7 percent. Unicom's 55 percent rise this year has taken its forward 12-month valuation on a price-to-earnings basis 77 percent higher than the long-term historical median. Unicom trades at 31.2 times forward 12-month earnings, suggesting trade could be getting crowded.
Europe-focused apparel retailer, Esprit Holdings Ltd plunged 17.6 percent to its lowest since May 2003. The company posted a 98 percent drop in full-year net profit as restructuring costs and store closures hit. Market watchers suggest the timing of the announcement in this market probably exaggerated its losses, but pointed to specific issues with its business focus in North America and Europe that would compound problems for the consumer discretionary name.
The Shanghai Composite Index edged down 0.2 percent to 2,479.1 points, with financials and coal names among its biggest drags, extending the benchmark's struggle for direction over the past month as A-share turnover remained below average. Eight of the top 10 losers financial names were among the top 10 benchmark drags as small to mid-sized banks began mandated margin deposit payments to the central bank as part of efforts announced in late August to contain domestic money supply.
China Citic Bank Corp Ltd and China Minsheng Banking Corp Ltd both shed almost 2 percent, dragging the Shanghai financial sub-index down 0.6 percent. China Shenhua Energy Co Ltd and China Coal Energy both lost 0.9 percent each. The Shanghai energy sector index was down 0.5 percent. The Shanghai benchmark has hovered in a narrow 50-point band for the last eight sessions after progressively declining from a peak in July this year on concerns of insufficient liquidity on the mainland, which analysts expect could drive the market lower.
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