Hong Kong and China shares fell on Thursday as the resources sector suffered from another selloff in commodities, while a jump in Internet firm Tencent kept the Hang Seng above a key chart support level. Mining companies and oil producers led losses after an overnight rout in prices of raw materials they produce pushed the Reuters/Jeffries CRB index, a broad measure of commodities performance, down 3 percent.
Hong Kong's Hang Seng index closed down 0.9 percent at 23,073.8, holding just above its 200-day moving average, a level it had bounced off before heading to a 2011 peak in March following the Japan earthquake. A 4.2 percent rally in Tencent Holdings was almost single-handedly responsible for helping the benchmark hold above the 22,937.5 level. Traders attributed part of the stock's gains to a rush to cover short-positions in the counter that had built up before its quarterly results.
Tencent reported a record profit after the close of trading on Wednesday. Short-positions as a percentage of total turnover in the stock rose to as high as 45 percent last Friday, exchange data show. "We're also seeing some institutional money come into Tencent today," said Rafi Mohideen, head of Asian trading at Instinet, adding that long-term investors were looking to buy into the dip seen at April-end.
Tencent was the most actively traded benchmark constituent on the day as turnover on the Hong Kong stock exchange dropped to HK$67 billion, about 7 percent below the average seen over the past 20 sessions. If the low trading activity seen over the past month persists, Hong Kong Exchanges & Clearing, the world's most valuable exchange operator, is at the risk of seeing analysts cutting earnings forecasts. Shares of the company fell 1.7 percent to their lowest level this year.
"I think a lot of brokers are adjusting their models on this one. There will be downgrades and there is still time to sell or short," said a head trader at a Hong Kong-based brokerage. Resources-related counters also led mainland Chinese stocks lower on Thursday, with uncertainty over April economic data doing little to dispel concerns of further policy tightening.
The People's Bank of China also sold 40 billion yuan ($6.2 billion) of three-year bills at regular open market operations on Thursday, signalling the central bank will restart the use of long-term bill sales to drain cash from the financial system. Energy counters underperformed the broader Shanghai market as volatile oil prices cut appetite for the sector. The sub-indexes for energy shares and the materials sector index fell 2.0 and 2.6 percent, respectively.
"It is very difficult to imagine what could spur the market forward right now," said Wen Lijun, an analyst with Nanjing Securities. PetroChina Co Ltd, China Petroleum & Chemical Corp (Sinopec) and China Shenhua Energy Co Ltd were among the biggest weights on the benchmark, losing 1.3, 1.0 and 1.9 percent, respectively. PetroChina, in particular, has lost 9.4 percent since hitting a 5-month high on April 11. It has remained technically oversold since May 3 with its 14-day relative strength (RSI) index value currently at 13.8.
The benchmark Shanghai Composite Index lost 1.4 percent to finish at 2,844.1, a 3-month closing low, pulling the index further below its 125-day moving average, currently at 2,892.4. A-share turnover increased for the third straight day, hitting RMB 11.4 billion, but remained under its 20-day moving average for the sixteenth straight session, now seen at RMB 12.3 billion.