Shares in Hong Kong and Shanghai finished higher on Monday, with beaten-down Chinese companies leading a recovery from the rout in the last quarter as investors took on more risk ahead of China GDP data. Despite expectations that Tuesday's economic data will ease fears of a hard landing for the world's second-largest economy, strength in defensive shares and sluggish turnover suggest some longer-term investors remain cagey.
The Hang Seng Index closed up 2 percent at 18,874 points, with the China Enterprise Index of the top Chinese firms listed in Hong Kong, also known as H-shares, jumping 2.8 percent. The Shanghai Composite Index rose about 0.4 percent to 2,440.4. Fears of a sharp slowdown in China's economy have hit mainland property and financial stocks hardest, sparking capitulation in on- and offshore China markets in the last quarter, with the Shanghai Composite down 15 percent and the China Enterprises Index slumping 30 percent.
In a note on Monday, CICC said this was only the fifth time in the last 16 years that such capitulation in the markets coincided with a collapse in valuations - a rare occurrence that it said lays the foundation for at least a counter-trend rally or for a final market bottom.
Chinese insurance giant Ping An jumped 6.1 percent after reporting monthly premium data for September that Barclays Capital analysts said continued to outpace its peers in both life and non-life insurance. The H-share listing of one of China's largest insurers has almost recovered all of its losses from late September, but remains down more than 30 percent for 2011 to date.
It is now trading at 13.3 times forward 12-month earnings compared with a 10-year median of 24 times, according to Thomson Reuters Starmine data. Its price-to-book ratio stands at 2.2 times, compared with a 10-year median of 3.5. Along with Ping An, which is among the top four beta plays among Hang Seng components, Citic Pacific, the top beta play surged more than 8 percent, while Aluminium Corporation of China (Chalco) gained almost 7 percent.
Monday's gains brought the Hang Seng Index closer to its May 2010 low of about 18,971, which along with the 38.2 percent Fibonacci retracement of the benchmark rise from its 2008 low to the cyclical peak in 2010, at about 19,557, is seen forming near-term resistance.
Ping An was among the leading contributors to the Shanghai index, gaining 2 percent, but A-share turnover was sluggish ahead of the GDP figures. A Tsinghua University report on Monday suggested the world's second-largest economy might have grown by 9.3 percent in third quarter, figures that would assure investors that the economy remains resilient.
Financials also advanced, with the Shanghai financials index up 0.7 percent, boosted mainly by strength in medium-sized banks such as China Merchants Bank and China Minsheng Bank. China Shenhua Energy Co Ltd was the top boost to the Shanghai Composite, gaining almost 2 percent, while PetroChina Co Ltd inched up 0.3 percent.