Disappointing earnings from big Chinese companies spooked investors in Hong Kong on Monday, pulling the market down 0.39 percent. Meanwhile, the Shanghai Composite Index gained 0.2 percent at 2,984.0 points, extending a 2.4 percent rise over the week last week as investors there shrugged off results that put a dent in Hong Kong and caused anxiety about other earnings announcements coming this week.
In Hong Kong, the main disappointment was with China Construction Bank Corp (CCB), which fell 2.3 percent after reporting 2010 earnings that missed expectations and recorded a 4 billion yuan ($610 million) impairment charge. State-run Sinopec, a downstream-heavy firm, is more vulnerable to rising crude oil prices than its domestic peer PetroChina, as it finds it harder to pass on high crude costs to consumers through oil product price hikes.
The Hang Seng Index finished at 23,068.19 while the China Enterprises Index of top locally listed mainland companies retreated 0.62 percent. In Shanghai, shares of CCB dipped only 0.2 percent. "Negative earnings report will have a greater impact on Hong Kong markets because the China market is closed and people are always looking to invest excess liquidity as a result," said Alam Lam, Greater China Equity Analyst at Julius Baer in Hong Kong.
In Hong Kong, negative sentiment weighed on other banking stocks in Hong Kong. Dual-listed banking Industrial and Commercial Bank of China Ltd (ICBC), saw a divergence in trading direction. The bank, expected to report 2010 earnings on Wednesday, dipped 0.2 percent in Hong Kong, but was up 0.9 percent in Shanghai. Some analysts speculated that the expiration of index futures this week would contribute to selling pressure as investors take profit ahead of the end of the month.
"There's going to be a tug of war this week at the 23,000 level in relatively low volumes," said Ben Kwong, chief operating officer at KSI Asia in Hong Kong, adding that the index is seen by investors as having bounced back from near-term losses triggered by events in Japan. Earnings expected on Tuesday include Agricultural Bank of China Ltd, Cheung Kong (Holdings) Ltd, Hutchison Whampoa Ltd and Ping An Insurance (Group) Company of China Ltd.
Most of the 16 banking shares listed on the Shanghai and Shenzhen markets rose, with China Minsheng Bank, the country's seventh-largest listed bank, rising 2.6 percent after posting a 45 percent rise in 2010 net profit. Analysts said corporate earnings of 2,100-plus Chinese listed firms last year were generally expected to be better than previously, with their combined net profits possibly rising more than 30 percent compared with estimates late last year of 15 to 20 percent
Most analysts expect the Shanghai index was likely to correct around 3,000 points in the near term. "Around the key 3,000 point-level, the index faces stiff resistance," said Wen Lijun, an analyst at Nanjing Securities. "Blue chips rose recently buoyed by expectations tightening policies would be slowly implemented, but no one can be sure about that."
The index dropped 14 percent last year to become one of the world's worst performing bourses. Sentiment was hit by worries over a clampdown on asset prices, particularly of its red-hot property market, brushing aside the fact that China's economy continued to grew strongly. Steel makers also outperformed on Monday, while Inner Mongolian Baotou Steel jumped its 10 percent daily limit and Baoshan Iron & Steel was up 2.7 percent.