Hong Kong, China shares edge up

Chinese shares edged up on Tuesday, with market players expecting inflation to remain a near-term concern but seeing attractive valuations lifting the market after the Lunar New Year holiday. Volume in Shanghai and Hong Kong remained light with investors largely on the sidelines ahead of the week-long market holiday in China starting on Wednesday.
Turnover on the Hong Kong bourse, which will be closed on Thursday and Friday, fell to its lowest since January 3. Input prices jumped in China, the purchasing managers' index data released earlier showed, suggesting policy makers would stay the course in monetary tightening.
"I think inflation is still a key concern, as it is most Asian countries, even though China's response was actually one of the earliest," said William Fong, a Hong Kong-based portfolio manager for Barings Asset Management, who runs Greater China funds for the firm.
"Once the government achieves its breakthrough in terms of containing inflation, which I expect will happen later this year, valuations will be a big tailwind for the market." While a lot of the inflation was food-related, a spike in oil prices on the back of political unrest in Egypt was a concern, analysts said. Nevertheless, the rise in crude oil prices, which has taken Europe's benchmark Brent crude futures above $100 a barrel, lifted shares of major oil producers.
CNOOC rose 2.7 percent, the top performer on the Hang Seng, while rival Petrochina was up 2.6 percent, leading the energy sub-index up 1.4 percent on the day. The advance in energy shares helped the Hang Seng index snap a three-day decline. Bearish bets, particularly on Chinese stocks listed in Hong Kong, rose on Monday with the shorted volume on the iShares FTSE A50 China tracker fund rising to 32.1 percent of overall turnover, the highest in two weeks, as of the close.
The push and pull between those optimistic on Chinese shares after their underperformance last year and those betting on further weakness is likely to keep market activity volatile after trading resumes in full earnest after the Lunar New Year. Traders may soon have a way to hedge against that volatility in Hong Kong, however, after the Hang Seng Indexes Company, which owns and manages the benchmark indexes, launched a volatility index, its own version of Wall Street's "fear gauge," the VIX.
The transportation sector was broadly weaker on Tuesday after recent gains, with profit-taking seen in railway-related stocks and shippers on the back foot on uncertainty over the impact of Egypt's crisis on cargo rates. "The biggest risk could be from any disruption at the Suez Canal, which is vital to marine transportation between Asia and Europe," said analysts at Credit Suisse in a note, adding that the likelihood of the canal being closed was low.
Railway stocks, which saw heavy buying interest in recent weeks as China stepped up efforts to develop a high-speed network, were lower as investors took money off the table. China CNR Corp dropped 1.8 percent, while CSR Corp fell 1.8 percent.