Hong Kong shares hovered near a key chart support level on Tuesday while China shares rose on coal plays although light trading volumes suggested market players see benchmark indices staying within recent trading ranges in the near-term. The benchmark Hang Seng Index closed down 0.3 percent at 22,901.1 by the midday trading break, close to its 200-day moving average that has provided support over the past two sessions and from where the index bounced towards a 2011 peak following the Japan earthquake.
Hong Kong's key index has been trading in a range since the first quarter, partly because of similar sluggish performance by HSBC and China Mobile Ltd, which contribute about 25 percent to the Hang Seng's moves. HSBC, down 0.7 percent on the day, has lost 9 percent since hitting a one-year high in February and is flat on the quarter. China Mobile is down 10 percent this quarter as investors have favoured rival China Unicom, which is up 18 percent.
Investors were not necessarily bearish but did not seem to trust any rally, said Patrick Lee, executive director of trading strategy at Daiwa Capital Markets in Hong Kong, adding that possible easing of monetary policy in China in the second half of the year would be a big positive. China's central bank has been squeezing liquidity, having hiked reserve requirements five times so far in 2011 and while seven-day repo rates in China, the main barometer of short-term liquidity supply, eased slightly it remains near three-month highs.
China Shenhua rose 2.8 percent while Yanzhou Coal rose 3.9 percent. Turnover remains a concern in Hong Kong with levels seen over the past two sessions the lowest excluding non-holiday-related days since September last year with traders attributing the thin trading to a lack of conviction among players. The benchmark Shanghai Composite finished up 0.1 percent to 2,852.8 on Tuesday, after market players cut back early gains to hover around its 2,850 support from which it bounced off in mid-March to hit its 2011 peak in mid April.
Traders and analysts said this pull back in afternoon trade suggests investors were not confident of a sustained rally on the Shanghai Composite, with further downside seen supported at 2,800 and the 125-day moving average, currently at 2,885.7, offering near-term resistance.
"Any downward trending should involve some bounces," said a Shanghai-based trader. "There's large volume accumulated around 2,850 right now. That looks like the median of a tight trading band (in the near term)." Energy stocks, in particular coal, were outperformers with the Shanghai energy sub-index rising 2.3 percent on the day, with China Shenhua and Shan Xi Guo Yang New Energy Co Ltd (Guoyang) the biggest supports.
"Valuations of energy stocks are probably attractive for funds after the recent downward spiral, so it could just be funds buying on the dip for now," said Zhang Qi, an analyst with Haitong Securities.
Shanxi-based coal producer Guoyang, in particular, gained a maximum 10 percent on the day, in volume almost 2 times its 30-day average, as investors anticipate a power shortage in China over the summer would lift spot coal prices and help drive profit. Overall, A-share turnover picked up on Tuesday, hitting RMB 109.5 billion.
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