Hong Kong and Shanghai stocks rebounded on Tuesday as mainland property developers soared on signs urban prices would continue to rise and as coal producers rallied. The Hang Seng rose 1.6 percent, rallying from a two month low on Monday although daily turnover on the Hong Kong stock exchange fell to the lowest in more than three months as investors were cautious ahead of the new year.
The index is up 5.1 percent so far in 2010. More significant gains were undermined by almost a month of profit-taking that pushed the benchmark below a key chart support level. Shanghai's key index closed up 1.8 percent, led by a rally in property issues after the Economic Information newspaper run by the official Xinhua news agency forecast urban housing prices may jump 20 percent next year.
A sub-index of property shares rose 5.4 percent, its biggest single-day jump in seven months, as some funds positioned themselves for a rally in developers next year. Property shares have dropped more than 23 percent this year hit by a slew of measures by Beijing to curb property prices.
Market players said the report on urban housing prices spread in the afternoon after it was quoted by influential Chinese financial website, www.finance.eastmoney.com. Top property counters China Vanke, Poly Real Estate and Beijing Capital Development all rose by their 10 percent daily limit.
"You are seeing speculation sparked by the report published on the website," said senior analyst Qian Qimin at Shenyin and Wanguo Securities. "But don't expect too much in the stock market's performance amid an overall liquidity crunch situation." China's benchmark short-term rate moved up 52 basis points to its highest level in more than two-years on Tuesday as traders reported a shortage of funds in the banking system after a slew of tightening steps by the central bank.
Coal issues also rose, led by China Shenhua, which said it planned to buy $1.3 billion in assets from its parent to increase coal reserves. Its shares in Hong Kong rose 3.7 percent and in Shanghai they increased 6 percent. Heavy rains have disrupted coal production in Australia and Indonesia and so tightened the global market, resulting in a 9.4 percent rise in international seaborne spot prices for thermal coal, J.P. Morgan said in a note.
Most strategists are bullish that Chinese shares will recover strongly in 2011. Inflation on the mainland, which reached a 28-month high in November of 5.1 percent, and fears of capital controls to stem capital inflows, remain key concerns though. The Chinese markets have underperformed the wider regional markets in 2010. The MSCI index of Asian shares outside of Japan has risen 12.6 percent so far in 2010, compared with a 5.1 percent rise in Hong Kong and a fall of 11.3 percent in Shanghai - Asia's worst-performing market.
The China Enterprises Index, a Hong Kong measure of top Chinese companies, has fallen 1.5 percent so far in 2010 but appetite for Chinese shares listed abroad, particularly technology-related, remains strong. Underlining that demand a record number of Chinese companies have listed in the United States this year. Several soared on their trading debuts.