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China shares sink as profit taking hits 2013 outperformers, weighs on Hong Kong

Clement Tan
Wednesday, 23 Oct 2013 | 12:49 AM ET

Kong@

* HSI -0.1 pct, H-shares -0.2 pct, CSI300 -1.0 pct

* Profit taking hits ChiNext, tech-related, consumer names

* China banks rise after Ping An Bank's encouraging earnings

* Sichuan counters up, infrastructure investment announced

HONG KONG, Oct 23 (Reuters) - China shares surrendered early gains to go into the midday break weaker on Wednesday, weighing on Hong Kong markets, as profit taking accelerated on the year's outperformers from power producers to high-technology start ups.

Chinese banks outperformed after Ping An Bank reported robust third-quarter net profit, suggesting the impact of an end-June cash crunch in the mainland may not have been as bad as previously feared.

At midday, the Hang Seng Index was down 0.1 percent to 23,299.9 points, while the China Enterprises Index slipped 0.2 percent. If losses persist, it would be the third-straight session that they have finished off the day's highs, a bearish indicator.

The CSI300 of the leading Shanghai and Shenzhen A-share listings shed 1 percent after briefly touching its highest intra-day level in more than a week as the benchmark struggled at its 200-day moving average. The Shanghai Composite Index sank 1.2 percent.

"Funds are taking some profit on the outperformers, adjusting their positioning after superlative gains in the year to date," said Zhang Qi, a Shanghai-based analyst with Haitong Securities.

The Nasdaq-style ChiNext of mainly high growth, technology start ups listed in Shenzhen tumbled 3.6 percent to its lowest in almost a month, but is still up more than 68 percent for the year. The CSI300 is down 4 percent.

Shenzhen-listed Suning Appliance, China's largest white goods retailer by market capitalisation, dived another 8.6 percent after falling more than 6 percent on Tuesday. It is still up 70 percent this year.

Even ZTE Corp was not spared from the wave of profit taking despite the world's fifth-largest telecom equipment manufacturer posting a 242 million yuan profit late on Tuesday, at the low end of its guidance.

Both its A and H share listing tumbled more than 5 percent. It is still up more than 66 percent in Shenzhen and more than 31 percent in Hong Kong.

China will launch simulated trading in stock index options based on the CSI300 on Nov. 8, official media reported on Wednesday, as regulators move to enhance risk hedging options to support further financial reforms.

Ping An Bank shares spiked 4.6 percent after the Chinese lender reported a 19.8 percent spike in quarterly net profit from a year earlier, while warning that its capital adequacy ratio remains under pressure.

Investors were mainly encouraged by its positive net interest margins, Credit Suisse analysts said in a note. This is mainly due to its higher asset yield, strong fee income and a reduction in its inter-bank assets, they added.

Ping An Bank's positive result sets the stage for quarterly results for the rest of the Chinese banking sector over the next two weeks and augur well for a clutch of mid-sized banks looking to list in Hong Kong to raise funds to meet capital adequacy requirements.

IFR reported that Chinese city commercial lender Bank Of Chongqing will launch an up to $593 million initial public offering in Hong Kong on Wednesday, citing sources with direct knowledge of the plan.

Ping An Bank's shares, along with other mid-sized peers, were among the hardest hit when an interbank liquidity crisis hit at the end of June in what was seen a move engineered by the Chinese central bank to wean bankers off their reliance on short-term money supply and riskier lending.

With month-end approaching, China's money rates are returning into focus. The mainland's seven-day repo rate hit its highest in more than a week on Thursday, although it is still way off end-June highs.

A policy adviser to the People's Bank of China told Reuters the authority may tighten cash conditions in the financial system to address the inflation risks, while the central bank refrained on Tuesday from supplying cash to money markets for the second session running.

Power producers also succumbed to profit taking. Huaneng Power, which closed on Wednesday in Hong Kong at its highest since May 20, tanked 6 percent despite posting robust quarterly earnings.

A government-imposed cut to electricity prices and a slowing economy are set to crimp the profit growth of China's power producers this year.