Hong Kong shares ended up on Thursday, supported by real estate firms, as cheaper valuations attracted investors, while China's benchmark index dipped on profit-taking in key blue chip stocks. Property counters in Hong Kong rose, led by China Resources Land Ltd and Henderson Land Development Co Ltd and analysts expect the rally to continue on expectations of demand in second and third tier Chinese cities.
"Going into the second quarter, the valuations of China property counters are very attractive," said Lee Wee-Liat, Regional Head of Property at Samsung Securities (Asia) Ltd. "There are many who believe that second- and third-tier cities are going to affect their net margins, but that hasn't been the case," he added.
The benchmark Hang Seng Index finished Thursday up 0.3 percent at 23,527.5 and up 2.1 percent on the first quarter. Analysts expect Hong Kong's main stock index to be range-bound for the next quarter unless a fresh macroeconomic trend emerges. The Hang Seng's property sub-index is up 0.19 percent on the quarter, underperforming the main index.
China's main stock index, the Shanghai Composite finished down 0.9 percent on the day to 2,928.1 but up 4.3 percent in the first quarter, rebounding from last year's 14 percent fall. Fund managers expect Shanghai shares to rise further this year, recouping most of the losses logged in 2010, though concerns over monetary tightening could lead to a temporary dip next quarter. They recommend a higher exposure to Chinese financial and property stocks.
However, unstable global markets and the impact from the Japan earthquake have increased uncertainties for the Chinese market, so investors may remain cautious in the second quarter, said Cheng Yi, an analyst at Xiangcai Securities in Shanghai. Both China's and Hong Kong's main stock indices outperformed the Nikkei, down 5 percent for the quarter and Taipei's TAIEX, down 3.22 percent. Seoul's KOSPI finished up 2.7 percent for the first quarter.
The Chinese markets witnessed a bout of short-selling in blue chip stocks such as Inner Mongolia Baotou Steel Union and Guizhou Chitianhua Co , which had outperformed the benchmark in recent weeks. Inner Mongolia, the most active stock and the second-biggest loser on the Shanghai market, tumbled 9 percent, after a 56 percent rise since March 14. However, the outlook for the Chinese stock market will clearly depend on liquidity, as determined by the monetary policy, analysts say.
"Liquidity is really ample for now, meaning there is a strong probability the central bank will tighten monetary policy again (in the second quarter)," said Cao Xuefeng, head of research at Huaxi Securities in Chengdu. So far this year, the People's Bank of China has raised interest rates once and banks' required reserve ratio three times, which is now at a record high of 20.0 percent for big banks.