Hong Kong and Chinese shares dip on profit taking, up on week

Hong Kong and Shanghai shares fell on Friday as investors took money off the table cashing in earlier gains in banks and property firms after China data showed annual inflation eased only a shade, reinforcing concerns about the global economy. Data released after Shanghai markets closed showed China's bank lending and money growth slowed more than expected in September, weighing on Hong Kong's market but local benchmarks managed to hold on to weekly gains.
Chinese shares rallied this week, partly on short-covering, as optimism grew over steps taken to restore confidence in the financial system, including China's sovereign wealth fund buying bank shares and new loan quotas for some small and medium-sized enterprises.
China's annual consumer inflation eased to 6.1 percent in September, falling for a second successive month, although stubborn food price rises showed Beijing's fight against inflation is not over. Hong Kong's Hang Seng index closed down 1.4 percent at 18,501.8. The Shanghai Composite Index fell 0.3 percent at 2431.37. On the week the benchmarks are up 4.5 percent and 3.1 percent, respectively.
It was the Shanghai Composite's first gain in six weeks. Earlier this week, Central Huijin, the domestic investment arm of China's sovereign wealth fund, stepped in to buy Shanghai-listed shares of the "Big Four" Chinese banks, a move regarded by market players as the clearest sign yet of Beijing looking to support the struggling stock market.
Investors responded by lifting an index of Chinese financial shares in Hong Kong up 10.7 percent this week, the biggest weekly gain in 2-1/2 years. "The gains this past week are the most significant movement since 2009 and likely herald a positive shift," said Zhong Hua, senior equity analyst at Guotai Junan Securities at an investor conference in Shanghai.
Banks, which bounced off near 2-1/2 year lows on news of the Huijin purchase, were the top drags on the Hang Seng on Friday as some investors cashed in. Agricultural Bank of China Ltd fell 5.3 percent, the weakest performer among large cap financials. Industrial & Commercial Bank of China Ltd fell 4.3 percent.
AgBank shares in Hong Kong has seen the heaviest short-selling among the top four banks over the past week, suggesting investors remain wary about its rebound and expect it to underperform peers going forward. Average short-selling as a percentage of turnover for AgBank this week was 18.4 percent, almost twice the average seen for the four banks taken as a group. Also lower on Friday were major Chinese oil producers on worries over declining profit margins.
CNOOC Ltd fell 4.3 percent.Sun Hung Kai Financial, which maintained a "sell" rating on CNOOC, said in a note that margins were likely to be squeezed by falling oil prices and higher taxes. Earlier this week, China said it would extend a regional resource tax on domestic sales of crude oil to the whole country and change the taxation policy on foreign-invested onshore and offshore oil and gas fields, a move set cut into revenue of state-owned energy companies. The weakness in Chinese financials and cyclicals hit the China Enterprises Index of top locally listed mainland companies the hardest with the index down 2.2 percent.