Hong Kong shares closed higher on Monday, lifted by the Shanghai Composite's biggest advance in two months on signs of robust Chinese growth and talk that January inflation was milder than expected. The benchmark Hang Seng finished up 1.3 percent at 23,121.1, recovering slightly from its biggest weekly decline since May 2010. The index fell 4.5 percent last week.
Daily turnover on the Hong Kong stock exchange dropped though, falling just short of the HK$80 billion mark that had been easily breached in each of the last three trading sessions. The benchmark Shanghai Composite Index rose to an eight-week high of 2,899 points. The gain of 2.5 percent was the biggest daily percentage rise in two months.
The decline in trading activity came even as short-selling as a percentage of total turnover was consistent with levels seen last week, suggesting that some investors were still looking to sell into strength. Strong economic data from across the world, including US consumer sentiment at an eight-month high, optimism about Japanese exports and forecast-beating trade data from China helped bolster investor confidence on the day.
"The Hang Seng Index rebounded on better-than-expected macro data from the United States and Japan, and was further underpinned by rumours of a 4.9 percent January CPI reading (from China)", said a Hong Kong-based trader at a Japanese bank. Market players said China consumer prices may have risen slower than forecast in January and well below the consensus forecast of 5.3 percent, but added that the low reading could be the result of changes to the weighting of the consumer price index (CPI).
The official inflation data will be announced on Tuesday. Mainland Chinese banking shares outperformed as a cash crunch that had impacted the financial system through January showed signs of easing. Bank of China rose 2.3 percent. ICBC was up 1.9 percent. Agricultural Bank of China Ltd, which has lagged other financials in Hong Kong this year, rose 3.1 percent. Agbank is down 4.6 percent so far this year compared with a 1.1 percent gain for the financial sub-index.
Financials were also the top performing sector in Shanghai, helping to lift the benchmark stock index into positive territory for the year. Daiwa Capital Markets trading strategist Patrick Lee said that over the past week the percentage of stocks rising above their 20-day moving averages in Shanghai improved to 95 percent from 34 percent the prior week.
That indicated that short-term momentum in China's markets was improving, said Lee. An upbeat earnings forecast from Great Wall Motor, China's largest sports-utility vehicle maker, and expectations of strong January sales in China's auto market, now the world's largest, drove up shares of automakers. Great Wall Motor rose 6.1 percent. Dongfeng Motor Group Co Ltd surged 9.3 percent closing above its 2011 high, suggesting further gains ahead.
Chinese railway-related shares bucked the upward trend after a disciplinary investigation against the minister in charge of the sector raised doubts over expansion plans announced over the past few months. CSR Corp, one of the world's biggest makers of electric railway vehicles, fell 3 percent while rival CNR Corp lost 2.7 percent in Shanghai.