China shares inched higher on Tuesday while Hong Kong's Hang Seng Index ended little changed, but top aluminium producer Chalco jumped 7 percent after the company forecast a return to annual profits. Shanghai's key stock index edged up 0.1 percent after finding support at a near-term chart level, while better-than-expected earnings from two banks helped alleviate concerns that tighter monetary policy will squeeze lenders' profits.
The index tumbled 3 percent on Monday after a hike in banks' reserve requirements and talk of a property tax in Shanghai spooked markets. "Entering into 2011, the Chinese equity markets are as bumpy as last year, but the market could be overly worried this time," said Minggao Shen, head of China research at Citigroup.
Some analysts expect strong corporate earnings to support the market and shift investors' focus back to company profitability. In Hong Kong, Chalco shares finished 5.5 percent higher and were the top gainers on the benchmark after the company said it expected to return to annual profits for 2010 on the back of higher aluminium prices and cost reductions.
Hutchison Whampoa was the third most actively traded counter amongst Hang Seng index constituents after the company said it was planning a $6 billion listing in Singapore, the city-state's largest ever, for its port unit. Hutchison shares slipped 2.4 percent on the day but have risen over 17 percent this year making them the second-best performers on the index behind Internet firm Tencent Holdings, which is up 19 percent.
In Shanghai, a key support level on the charts and optimism over banks' earnings helped offset fresh signs of official measures to dampen bank lending to curb inflationary pressures. The benchmark Shanghai Composite Index finished at 2,709 points and appears to have found temporary support at the crucial 2,700-point level after tumbling 3 percent to a three-month low on Monday.
Two mid-sized lenders, Industrial Bank and China Everbright Bank, said their net profits grew 39.5 percent and 65.88 percent, respectively, in 2010, boosting shares in the financial sector. The PBOC announced a 50-basis point rise in bank reserve requirement ratios on Friday, which will take effect on Thursday and freeze an estimated 360 billion yuan ($55 billion) in a clamp down on excessive early-year bank lending.
Turnover of Shanghai A shares dropped to only 67 billion yuan ($10 billion), its lowest since September 21 and down 36 percent from an already low 104 billion yuan on Monday. Technically, the index could reverse the 80-point jump in early October, which became the prelude to a one-month rally boosted by optimism over cash inflows.
On the upside, the 125-day moving average, now at 2,781 and seen by local investors as demarcation of a bullish or bearish trend, will serve as a stiff resistance, analysts said. Among hot stocks on Tuesday, Industrial Bank closed up 1.8 percent and China Everbright Bank added 0.3 percent, pushing up most of the 16 banks listed on the Shanghai and Shenzhen stock exchanges along with them. The banks' earnings bode well for the 2010 earnings reporting season that will last until April 30.