Chinese shares down; Hang Seng Index rises

China shares snapped a nine-week losing streak, but on Friday finished down from the week's highs on fears that capital outflows would drag on markets. The Shanghai Composite Index slipped 1.3 percent on the day, but in Hong Kong, the most popular gateway for foreign investors to get exposure to China, the Hang Seng Index and China Enterprises Index of the top mainland listings in the territory ended up 0.6 and 1.1 percent, respectively.
On the week, the Hang Seng Index firmed 3.3 percent, while the China Enterprise Index gained 6.2 percent and the Shanghai Composite rose 3.8 percent, mainly due to advances early in the week following economic data that sparked expectations of aggressive monetary policy easing.
The outperformance this week of H-shares, or Chinese shares listed in Hong Kong, relative to their mainland counterparts, could suggest that foreign investors are more bullish than mainland investors, bruised after the Shanghai Composite lost more than 33 percent over the past two years - among the worst performance in Asia. Data on Friday that showed China recorded declines in forex reserves in November and December, the first consecutive fall since the first quarter of 2009, as a narrowing trade surplus and an outflow of speculative funds reversed the accumulation of dollars. "It's been very sentiment-driven this past week. The markets are very fragile, driven by news flows," said Hong Hao, a Beijing-based global equity strategist with CICC.
On Friday, Chinese financials were particularly strong in Hong Kong, where overall turnover stayed relatively high, despite declining from Thursday. Industrial and Commercial Bank of China (ICBC), the top boost to the Hang Seng Index, gained 2 percent.
HSBC Holdings Plc, Europe's largest bank and the Hang Seng's single biggest weight, rose 0.8 percent after better-than-expected European bond auctions alleviated fears about that region's debt crisis.
Growth-sensitive China Shenhua Energy Co Ltd was among beneficiaries after its parent company said it was increasing its A-share stake in the country's largest coal producer, but it was among the top drags in Shanghai on Friday, shedding 0.6 percent. The Hang Seng Index has been capped at 19,242, its December high, while the Shanghai Composite Index has been capped at 2,300, a support level that it bounced off on at least three occasions since July 2010 until a breaching in mid-December. China will report fourth-quarter GDP data on January 17, along with December industrial output, investment and retail sales data, which could spur gains and help benchmark indexes break technical resistance.