Shanghai shares slips, Hong Kong up

Chinese shares slipped on Friday as talk of interest rate increases over the weekend and further policy tightening kept investors on the back foot. Speculation about monetary policy moves often emerges on Fridays as the central bank tends to announce its decisions at the weekend. Sure enough, China's central bank, acting after the markets had closed, raised lenders' required reserves by 50 basis points.
It was the seventh increase since early 2010 and Beijing's latest step to mop up excess cash in the economy after annual inflation hit a 28-month high of 5.1 percent in November. The weak mainland market weighed on Hong Kong's exchange although strong momentum in financials helped the benchmark Hang Seng Index rise 0.18 percent. The index was up 2.5 percent on the week. The Shanghai Composite Index fell 1.3 percent, bringing its weekly loss to 1.7 percent and extending its underperformance versus other regional markets. The MSCI Asia ex-Japan index gained 1.4 percent on the week. Chinese banks listed in Shanghai were broadly weaker.
The benchmark Shanghai Composite Index fell to 2,791.3 points after a 0.2 percent rise on Thursday. In the money market, the benchmark weighted average seven-day government bond repurchase rate rose 20 bps to 2.5296 percent, suggesting lenders were keeping funds on hand.
Many of the 16 banking shares listed on the Shanghai and Shenzhen markets fell, with China Everbright Bank, the second most active traded stock on the Shanghai market, down 2.44 percent, while Agricultural Bank of China fell 0.8 percent. Hengyuan coal, the third biggest loser on the Shanghai market, slumped 9.37 percent, while Panjiang Coal dropped 8.4 percent.
Financial issues in Hong Kong have been the subject of renewed interest this week, leading the benchmark index to four successive days of gains as investors bet that reasonable valuations and strong earnings would help the laggard sector catch up. The financials sub-index, which fell 1.1 percent last year compared with a 5.3 percent advance by the benchmark, is up 5.6 percent so far this year, the second-best performing sector behind property developers. A trader at a large US investment bank in Hong Kong said the retail focus was moving to banks, pointing to increased warrants activity in the sector.
Retail investors in Hong Kong are active players in the liquid local warrants market, partly because of constraints on individuals to play on single-stock options, and higher volumes of traded warrants often point to increased retail activity. HSBC rose 0.2 percent on over 2 times its average 30-day traded volume. BOC Hong Kong rose 3 percent, while ICBC rose 1 percent. Property counters rose, led by Cheung Kong Holdings, up 2.8 percent to HK$134.50, after brokerage Morgan Stanley raised its price target to HK$150 and reiterated its "overweight" rating on the industry bellwether.