Hong Kong, Chinese shares up

Hong Kong shares posted mild gains on Tuesday but continued weakness in Chinese banking shares kept the benchmark rooted in oversold territory as investors remained cautious ahead of a confidence vote in the Greek government. The Hang Seng index, which opened up nearly a percent, saw early gains fade as shares of large-cap Chinese banks came under pressure led by China Construction Bank which fell 3 percent on high volumes.
The benchmark was trading 0.3 percent higher at 21,668.2 by the midday break with activity centred around banks and defensive issues such as utilities. The index's relative strength index rose to 20 but remained well below the threshold level of 30.
"With Greece still waiting for the bailout cash, markets will likely remain skittish until final details are agreed upon," said Todd Martin, Asia equity strategist at Societe Generale in Hong Kong. Shares of the largest Chinese banks fell, with the exception of Industrial & Commercial Bank of China, which was up 0.9 percent.
Reports that Bank of America Corp was planning to offload half of its sizeable stake in CCB dragged shares of China's top mortgage lender down 3 percent, bringing their monthly losses to nearly 13 percent. That slide has pushed CCB's valuation to their lowest since the depths of the financial crisis in late 2008. According to Thomson Reuters Starmine, CCB shares trade at 7.5 times forward 12-month earnings forecasts, a 41 percent discount to their historical median value.
Despite attractive valuations, some analysts remain cautious on the sector partly on concerns over asset quality. Chinese bank shares in Hong Kong now trade at between 1.4 to 2.1 times book value, with China Merchants Bank and CCB the highest at 2.1 and 2 times, respectively.
China shares rebounded from a nine-month low in early Tuesday trade, lifted by cement, property and financial plays, but thin turnover, mainly due to the highest borrowing costs in years, suggests gains are likely a technical correction. China's benchmark short-term money market rate jumped 80 basis points to a multi-year high on Tuesday as demand heightened with banks preparing for mid-year cash calls to meet regulatory requirements, including a 75 percent loan-to-deposit ratio.
"It certainly feels like the market is being held back from breaking upwards today, but with so much going on right now, there just isn't enough money to go around," said Cao Xuefeng, head of research at Huaxi Securities. The benchmark Shanghai Composite Index closed up 0.22 percent at 2,626.98 at the midday trading break, with China's biggest lender, Industrial and Commercial Bank of China (ICBC) its biggest support, up 0.94 percent.
ICBC has relatively outperformed the financial sector and the broader market in the quarter so far, down 3.80 percent compared with the more than 10 percent decline on the Shanghai Composite and the 8.5 percent dip on the Shanghai financial sector index.