Banks led a broad uptick on the Hong Kong and China markets on Friday, after Bank of China Ltd kick-started a slew of high profile earnings late on Thursday with better-than-expected results. At the same time, market players showed little tolerance for shares that underperformed.
The benchmark Hang Seng Index gained 1.1 percent on Friday, and 3.8 percent on the week, to 23,158.67. The China Enterprises Index of top locally listed mainland companies climbed 1.1 percent on the day and 4.4 percent for the week.
The Shanghai Composite Index closed up 1.1 percent on Friday at 2,977.8 and finished the week up 2.4 percent, its strongest weekly showing in a month. The financials sub-index finished the day up 1.6 percent, buoyed by strong bank earnings. Bank of China , the country's third-largest lender, gained 1.8 percent in Shanghai and 2.6 percent in Hong Kong on Friday.
"Chinese banks doing well is not a surprise, but Bank of China's 29 percent full-year net profit increase is," said Edward Huang, a strategist at Haitong International Securities. Barclays Capital had forecast that Bank of China would report a 20 percent gain in net profit for 2010. In Barclay's view, China banks will report average profit gains of 35 percent for the year.
Bank of China's net interest margin expansion "is what surprised me most," said May Yan, Barclays Capital's head of research of China banks, noting that it has the largest overseas operations among Chinese banks and "its offshore margins have eaten into its onshore margins."
Ahead of other earnings announcements next week, China Construction Bank, Agricultural Bank of China Ltd and ICBC all gained about 2 percent on the day in Hong Kong as investors anticipated similar good news. "Bank of China's earnings showed that policies to cool property prices won't have a big impact on bank earnings, at least in 2011," said Xiangcai Securities analyst Cheng Yi in Shanghai. "And bank stocks are cheap. They're very attractive right now."
Coal plays were largely bullish ahead of earnings later on Friday. China's largest listed coal company, China Shenhua Energy Co Ltd rose 2.5 percent in Shanghai and 0.4 percent in Hong Kong. Yanzhou Coal Mining Co Ltd was up 2.3 percent in Shanghai and 1.0 percent in Hong Kong. But China Coal Energy Co Ltd fell 3.0 percent on Friday to hit an eight-month low, recording a third successive dip after announcing late on Tuesday that its 2010 earnings fell well short of market estimates. China's largest property developer China Vanke Co Ltd rose 2.7 percent in Friday's trading. Poly Real Estate Group Co Ltd leapt 4.5 percent.