Chinese shares flirted with their highest levels of the year on Monday, buoyed by surging commodities companies, before profit-taking in financial and property stocks pulled down benchmark indexes in Shanghai and Hong Kong. Banking shares, which carry the biggest sector weighting on the China and Hong Kong markets and had seen heavy buying in the run up to earnings reporting season, were broadly weaker.
"Some of the euphoria surrounding banks seems to have calmed down a bit," said Christian Keilland, head of Asian trading at BTIG in Hong Kong. Hong Kong's Hang Seng index , which had climbed 5 percent in the past month, ended 0.4 percent lower at 24,303.07 points while Shanghai's key stock index closed down 0.2 percent at 3,022.7, after having risen as much as 0.8 percent during the session to a 2011 high.
Chinese shares have seen a steady rise in fund inflows interest as attractive valuations and a healthy economy revived foreign investor interest. The Shanghai Composite and the Hang Seng are Asia's top performing benchmarks this year with gains of 7.6 percent and 5.5 percent, respectively. While strong earnings backed the view that banks were good bets, the rally had taken shares into technically overbought territory, suggesting some consolidation around current levels was possible.
Still, other sectors could pick up the slack analysts say. Resource counters, helped by resilient commodity prices, helped the China Enterprise Index of top Hong Kong-listed mainland firms rise 0.2 percent in a flat market. Petrochina rose 2.8 percent while gold mining company Zijin Mining rose 2.6 percent as the precious metal hit a fresh record high.
Foreign investors with a preference for North Asian markets were pouring money into Hong Kong and a weaker yen has now revived the carry trade - which involves using low-yielding currencies to buy higher-yielding assets, said Alan Lam, Greater China analyst at Julius Baer in Hong Kong. They poured in more than $1 billion into Asian markets outside of Japan in the week ended April 6, data from fund tracker EPFR Global shows. That was the highest in 20 weeks, according to EPFR.
Chinese property shares brought the mainland's index down after Chinese Premier Wen Jiabao said the country must strengthen regulation and control the red-hot real estate market. The sub-index of property issues tumbled 1.3 percent. Vanke, the country's largest developer dropped 3.6 percent, while Beijing Urban Construction Investment & Development, tumbled 6.3 percent.
The sub-index of small shares of the Shanghai and Shenzhen market fell 0.8 percent. But steel makers outperformed, with analysts saying that investors were upbeat that steel demand would be large in April following the earthquake in Japan. Inner Mongolia Baotou Steel Union, the most active share on the Shanghai market, jumped 6.1 percent.