Hong Kong stocks snapped a seven-session winning streak on Friday, losing ground as Chinese lenders such as Agricultural Bank of China Ltd fell on further tightening worries. The benchmark Hang Seng Index closed down 0.42 percent at 23,686.63. The China Enterprises Index of top Hong Kong-listed mainland companies fell 0.44 percent to 12,925.71.
Shanghai's key stock index rose 0.5 percent on Friday but was off an intraday high, with renewed interest in banking stocks and a flood of liquidity in the market offsetting talk of another imminent official tightening step, traders said. "Upside on the Chinese banks is limited, because these are usually very open to policy changes," said Patrick Yiu, director at CASH Asset Management in Hong Kong.
AgBank's Hong Kong-listed shares fell 1.72 percent, while bigger rival Industrial and Commercial Bank of China slipped 0.68 percent. Further weighing on banking shares was China Minsheng's planned 20 billion yuan fundraising plan, which sources say will be announced later on Friday. Energy stocks such as CNOOC also fell as the price of oil tumbled. CNOOC ended the session down 2.44 percent to record its weakest close this week.
Restricting gains in Hong Kong was the upper Bollinger band at 23,876, with stocks having hovered around the level and unable to break past the upper band in the past two months. The Shanghai Composite Index ended at 2,838.8 points but was off 2,868 - its highest level in the new year, with shaky sentiment keeping the index from decisively breaking through the crucial 250-day moving average now at 2,838.
The index gained 1.1 percent for the week as Chinese banks are rushing into their customary early-year lending blast under China's loan quota system - a factor that may trigger official tightening steps and restrain the stock market if it rises too quickly, traders said.
Rumours of tightening have been somewhat routine in China and some global markets ahead of the weekend. The People's Bank of China has raised interest rates twice and bank reserve ratios for all banks three times since mid-October to counter inflation, which reached a 28-month high of 5.1 percent in November.
"The day's rise was completely propelled by the strength in banking stocks, which have a heavy weight on the index," said Chen Shaodan, analyst at China Development Bank Securities in Beijing. Metal stocks suffered a blow late in the session due to renewed tightening talk, becoming the biggest downward driver for the index in the day. Minmetals Development Co ended down 4.4 percent and Tongling Nonferrous Metal Group Co slumped 6.2 percent.
Banks, on the other hand, were the biggest upward driver for the index amid expectations that strong 2010 results will push their valuations to new lows. Shanghai Pudong Development Bank Co, the top index mover as a single stock, jumped 4.4 percent. Sixteen mainland-listed stocks all rose except Minsheng Banking Corp Ltd, whose shares were suspended on a plan to raise about $3 billion in a share sale. China Construction Bank Co (CCB), one of the most active stocks of the day, closed up 3.3 percent. CCB is one of six banks among the top 10 stocks which have the lowest 2010 forecast price earnings ratios.