Hong Kong shares rose on Tuesday helped by a late rally in shares of heavyweight HSBC while mainland banks looked poised for further gains after China reversed reserve requirements for certain banks. China reversed punitive reserve requirements imposed on several banks after getting them to rein in their lending, two sources told Reuters, an indication of success in a crucial part of the government's campaign to control inflation.
Banking shares, still trading at reasonably attractive valuations despite steady gains so far this year, have seen investor interest pick up ahead of earnings reports later this month which are expected to show record profits. Higher reserve requirements and other curbs on lending after a lending binge after the financial crisis had kept investors away and pushed down valuations. But reports that new lending would follow below market expectations for a second consecutive month suggested that the government is gaining traction in its efforts to dampen credit growth.
Shares of ICBC gained 0.8 percent on the day while rival China Construction Bank rose 1.6 percent. Both banks trade at discounts of over 20 percent to their historic forward 12-month earnings multiples, according to Thomson Reuters Starmine and are seeing earnings expectations revised upwards.
A 2.3 percent gain for index heavyweight HSBC Holdings helped the Hang Seng to a 1.7 percent advance on the day. Retail investors were driving gains in the counter after HSBC shares arrested a two-weeks slide from their highest level in over a year. Shanghai's benchmark index ended up 0.1 percent, underpinned by a strong property sector, while financials saw mild profit-taking. The index ended at 2,999.9 points, just shy of the key 3,000-point psychological barrier.
The financial sub-index finished down 0.1 percent, ending a two-week run of gains. The property sub-index in Shanghai rose 0.7 percent following a strong set of numbers from bellwether China Vanke Co Ltd. Vanke said 2010 profit rose to a record high as sales of affordable housing boomed. Ramping up affordable housing is a key part of China's next five-year plan, which is expected to benefit construction-related sectors such as cement and equipment makers.