Hong Kong, Shanghai shares soar

Hong Kong and Shanghai shares closed higher as signs that price pressures in China are letting up raised hopes that Beijing will make some moves to ease monetary policy. Still, Wednesday's volumes remained light, suggesting investors remain wary. The Hang Seng Index closed up 1.7 percent, paring earlier gains slightly as trading activity dwindled through the day. The China Enterprises index of top locally listed mainland companies rose 2.2 percent, outperforming the broader market.
Some relief over political reform in Italy saw European banking heavyweights HSBC and Standard Chartered up 1.4 and 2 percent respectively, with the former providing the biggest boost to the Hang Seng. After Hong Kong's close, HSBC Holdings cited a dire outlook for the global economy as it reported a larger-than-expected drop in third-quarter profits.
China's annual inflation rate fell sharply in October to 5.5 percent from 6.1 percent in September, a further pullback from July's three-year peak of 6.5 percent. This gives Beijing more room to adjust policy to help an economy feeling the chill of a global slowdown.
While cuts in Chinese interest rates or bank reserve requirements remain unlikely for now, marginal steps taken by the authorities such as alleviating the cash crunch faced by small and medium-sized enterprises and the railway sector have spurred hopes for a year-end rally for domestic stocks.
The Shanghai Composite Index closed up 0.8 percent as financials and energy plays drove gains while developers lagged. The index is now up more than 9 percent from a 2-1/2 year low late last month. Caution following the rally in Chinese shares has seen trading volumes stay muted in Hong Kong. A spurt of short-covering drove turnover up about 30 percent in the first half hour of trade compared with Tuesday, but full day turnover rose only 7 percent.
One area of concern remains the Chinese property sector, which is unlikely to enjoy any relaxation of policies despite the pullback in inflation. On the mainland, shares of the larger developers continued to lag with China Vanke Co Ltd down 0.1 percent and Poly Real Estate off 0.2 percent.
China's property sales fell in October from year-ago levels for the first time in six months, official data showed on Wednesday, indicating market cooling measures have started to bite. The property sector, along with manufacturing and financials, saw the sharpest drop in earnings growth in the most recently reported third-quarter results, analysts at GF Securities said in a report.
Despite the negative headlines China-linked developers listed in Hong Kong benefitted from short-covering, said traders, after bearish bets in the sector started rising at the end of last week after an almost month-long lull. China Resources Land Ltd, up 3.4 percent on the day, has seen short-selling as a percentage of total turnover rise to levels last seen in August at the height of bearishness about Chinese shares.
On average, almost a fifth of daily turnover in the counters is on the short side, which is over 25 percent more than daily average last month, exchange data show. Also supporting were gains in large-cap Chinese names such as CNOOC Ltd, up 4 percent, and Industrial & Commercial Bank of China Ltd, up 3.6 percent.