Hong Kong and China shares rose on Friday to snap their weekly losing streaks but light trading volumes are likely to keep benchmarks within narrow chart levels in the near-term. Inflation remains a concern after a fifth increase this year in reserve requirements for China's commercial banks signalled that mopping up excess cash in the financial system and reining in prices remained a top priority for authorities.
The benchmark Hang Seng Index rose 0.9 percent to 23,276.3, finding support at its 200-day moving average, currently at 22,949.8, from which it had bounced back following the Japan earthquake. On the upside, the 100-day moving average around 23,431.5 is seen as near-term resistance. Traders said the late rebound followed market talk that China's securities regulator may introduce a programme that allows Chinese fund houses to raise money outside China to invest in domestic financial markets, known locally as "mini-QFII"," as well good GDP numbers from Europe.
But stubbornly high consumer prices in both Hong Kong and China, and concerns over further measures to curb inflation are likely to keep investors wary. "They (China) have sufficient reserves at their disposal to pump prime the economy as and when required. But it's going to be a fairly volatile period where we could probably see the economy slow down more than the market would like," said Arjuna Mahendran, head of Asia Investment of HSBC, in a Reuters Insider interview.
Choppy energy sectors pushed investors back into defensive sectors such as utilities, with China Resources Power rising 3.5 percent. Power Assets, formerly HongKong Electric, rose 3.4 percent on good volumes. Hengan International Group Co Ltd, China's largest maker of sanitary napkins, rose 2.9 percent after being included in the benchmark Hang Seng Index from next month, according to a statement from the index reviewer. Shares of Foxconn International, which is set to be dropped from the benchmark, slid 3 percent on expected selling by index funds that replicate the benchmark.
China's top lender, Industrial and Commerical Bank of China (ICBC), was the biggest support to the benchmark, gaining 2.0 percent on the day. "Larger banks are seen to be less affected than their smaller competitors by the latest hike in bank reserve requirements," said Zhang Qi, an analyst with Haitong Securities. The benchmark Shanghai Composite Index closed up 1.0 percent on the day and 0.2 percent on the week to 2,871.0 points on Friday. On the upside, the index is likely to be capped by its 125-day moving average.
A-share turnover declined on Friday to RMB 10.3 billion, 23.1 percent lower than its 2011 average of RMB 13.4 billion, according to Thomson Reuters data. The decline in volume has coincided with the benchmark's slide from its 2011 high in mid-April. Beijing lifted bank reserve requirements by 50 basis points late on Thursday, a day after data showed factory output growth in April eased much more than expected, while annual increases in money supply and outstanding yuan loans hit their lowest pace in 29 months - signs that measures to slow the economy are starting to bite.
Property stocks outperformed the broader market on Friday, as they have done for most of the week. The Shanghai property sub-index finished up 1.9 percent on the day and up 2.8 percent on the week. Poly Real Estate Group Co Ltd closed up 1.9 percent on the day and 3.2 percent on the week.