Hong Kong shares rose on Friday, building on gains in the first quarter, led by energy shares, while financials drove the Chinese markets higher after a good earnings season helped turn valuations attractive for investors. Energy majors CNOOC Ltd and PetroChina, drove the benchmark Hang Seng index up 1.2 percent on the day, while the Hang Seng Composite Energy Index finished Friday up 1.6 percent, extending its recent gains.
"For the last two weeks, some funds seem to have been buying sectors where the Chinese central government has been investing heavily," said Peter Lai, director of DBS Vickers in Hong Kong. "Such as energy, especially alternative energy stocks, but excluding nuclear after Japan."
The benchmark Hang Seng Index ended at 23,801.9 on Friday, gaining 2.8 percent on the week as Asian shares outside Japan rose to the highest in nearly three years. Hong Kong's main stock index had finished the first quarter up 2.1 percent on Thursday, outperforming the Nikkei but underperforming the Shanghai Composite Index.
China's main stock index ended up 1.3 percent at 2,967.41, but down 0.3 percent for the week as investors stayed away earlier in the week from banking stocks on concerns the central bank may tighten monetary conditions further. However, a strong earnings season and cheap valuations attracted investors, said Cheng Yi, an analyst at Xiangcai Securities in Shanghai. He added that recent rate rise expectations would increase banks' interest rate income.
The financial index rose 2.7 percent on the day. Second-largest insurer Ping An Insurance rose 3.6 percent in Shanghai and 4.7 percent in Hong Kong. China Pacific Insurance , the country's third largest insurer, rose 3.2 percent. Undervalued stocks such as banks and property may perform well in coming days but the broader index lacks enough volume to overcome the key 3,000 point resistance level, said Wen Lijun, an analyst at Nanjing Securities. "Confidence that this rally will continue is not high," she said. "Today is not the beginning of a trend." Property stocks rose in tandem with banks, finishing the day up 2.4 percent, and energy counters outperformed on demand. Yanzhou Coal Mining rose 7.2 percent.
China's official March purchasing managers' Index (PMI) data, released early Friday morning, showed the country's manufacturing sector grew for a 25th straight month, while factory inflation eased. In Hong Kong, the outlook for higher oil prices and demand from China pushed energy stocks higher. A survey conducted last week by Credit Suisse at its Asian Investment Conference showed its 2,000 participants broadly favouring China and energy counters, on account of higher oil prices, although some fund managers cautioned that slowing Chinese growth would reduce demand. "High oil prices now are more the result of the crisis in the Middle East and less due to fundamental demand," said Benjamin Chang, chief executive officer of LBN Advisers Ltd. "The execution of individual companies also matters, even in favoured sectors.