China shares listed in HK outpace onshore, set for best week in 2 years

Friday, 22 Nov 2013 | 12:05 AM ET

* HSI +0.5 pct, H-shares +1.2 pct, CSI300 -0.1 pct

H-shares at largest premium over A-shares in 3 years

* China brokers stretch weekly gains on expansion hopes

* China insurers buoyed by robust October premium data

By Clement Tan

HONG KONG, Nov 22 (Reuters) - Chinese shares listed in Hong Kong again outperformed markets in the mainland and most of Asia ex-Japan early on Friday, with strength in riskier issues poised to help the H-share index close out its biggest weekly gain in nearly two years.

Foreign investors rushed to cover bearish bets earlier this week after China unveiled last weekend an ambitious set of economic and social reforms, pledging to further free up markets and help local governments find new sources of fiscal revenue.

At midday, the Hang Seng Index was up 0.5 percent at 23,703.3 points and up 2.9 percent for the week, but just shy of the year's intra-day highs at 23,944.7. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 1.2 percent.

Gains for the H-share index were again limited by technical resistance at March highs, but it is now up 7.2 percent this week, its biggest since early December 2011 and a drastic outperformance over its onshore peers.

The Shanghai Composite Index was down 0.2 percent by midday and the CSI300 of the leading Shanghai and Shenzhen A-share listings off 0.1 percent. But the indexes are set for their best weekly showing in two months, up 3.1 and 2.5 percent, respectively.

That has left the Hang Seng China A-H Premium Index at its lowest since October 2010, suggesting H-shares are now trading at its biggest premium over A-shares in more than three years.

"The two markets are quite different at the moment, primarily because of their different liquidity conditions," said Hong Hao, chief equity strategist at Bank of Communications International.

Hong was referring to the tighter conditions in the mainland, where markets remained largely closed, as cash rates have risen this week despite the central bank's largest cash injection in nearly two months. On the other hand, global funds are now reallocating money to offshore Chinese markets.

"But trading wise, I don't think investors should take on any more risk after the big rally earlier this week," he added.

On Friday, Chinese brokerages stretched weekly gains, boosted by a report in the official China Securities Journal that foreign investors may be allowed to increase stakes. Draft plans submitted for approval on the expansion of the sector aims to "grow the industry by 10 times in the next 10 years," the same report said.

Citic Securities , the country's largest listed brokerage, jumped 2.9 percent in Hong Kong and 2.1 percent in Shanghai. This week, Citic shares have surged 19 percent in Hong Kong and 12 percent in Shanghai.

Chinese insurers were buoyed by a report in the official Shanghai Securities News that regulatory data showed insurance premiums jumped 11.6 percent in the first 10 months this year from a year ago. CPIC jumped 4.1 percent in Hong Kong.

Chinese coal producers in Hong Kong were also lifted by a report in the official China Securities Journal that China Shenhua Group, the country's largest coal producer, said it will raise steam coal prices for a ninth-straight week.

Yanzhou Coal spiked 3.4 percent, China Coal rose 1.4 percent, while China Shenhua Energy climbed 2.3 percent.

Other Chinese energy giants were also buoyed by published comments from a senior policy researcher that China will turn most of its state-owned enterprises (SOEs) into companies with diversified shareholders by 2020.

Andrew Swan, Blackrock's head of Asian equities, told the Reuters Investment Summit late on Thursday he has increased bets to Chinese energy and industrial stocks, while trimming positions in the outperforming Internet and casino sectors.

"You need to be very careful as an investor right now: not to pay too much on "new" China and playing too little of "old" China," Swan said. He added that he has not been invested in the Chinese property sector in the last 12 months and will not be looking to do so, given policy headwinds.

China Vanke, the country's largest developer by sales, slid 0.9 percent in Shenzhen on the day and is now down 1.8 percent this week and languishing at its lowest in nearly a year.

The State Council approved the establishment of a unified property registration system late on Wednesday, setting the stage for a nationwide expansion of a property tax trial.

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