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Hong Kong shares give up week's gains; China stimulus hopes dashed
May 30, 2012 / 9:33 AM / 5 years ago

Hong Kong shares give up week's gains; China stimulus hopes dashed

(Updates to close)

* HSI down 1.9 pct, CSI300 slips 0.3 pct

* Xinhua report seen tempering Beijing stimulus expectations

* HSI rolls back week’s gains, dips below chart level in higher turnover

* China railway sector, growth-sensitive sectors hit

* AgBank dives on reports of VP probe for financial crimes

By Clement Tan

HONG KONG, May 30 (Reuters) - Hong Kong shares snapped a three-day winning streak on Wednesday after media reports dampened expectations that Beijing is considering another massive stimulus program, dragging down Chinese railway, bank and energy stocks.

A recent slew of sector-specific incentives intended to stimulate demand had spurred hopes of stronger stimulus measures, but an article on the website of the official Xinhua news agency put paid to some of those hopes on Wednesday.

The report, posted after markets closed on Tuesday, said Beijing has no plan to repeat the powerful stimulus used to combat the global credit crisis in 2008, which amounted to some 4 trillion yuan ($630 billion).

Mainland Chinese markets were also weaker, but losses were comparatively more muted. The large cap-focused CSI300 Index slipped 0.3 percent from three-week highs. The Shanghai Composite Index shed 0.2 percent as bourse volume declined from Tuesday’s highs.

The Hang Seng Index lost 1.9 percent, giving up this week’s gains. The benchmark was also dragged back below the 50 percent Fibonacci retracement of its rise from October 2011 lows to February 2012 highs, at about 18,966 points.

The benchmark first slipped below this level on May 18 and has struggled to break above it for longer than a day, bound by a 500-point range. In a further bearish sign, losses came in bourse turnover totalling more than its 20-day average for the first time since May 18.

“I don’t think we need to be so cynical. Beijing will definitely have to continue to make adjustments, but it won’t change its top line rhetoric,” said Hong Hao, Bank of Communications International’s chief equity strategist.

China’s leaders have repeatedly said they would use a period of anticipated slower growth in 2012 to carry out structural reforms, particularly to government-administered prices that would otherwise stoke inflation risks.

In the short term, Hong said Chinese infrastructure and growth-sensitive plays remain good trading opportunities, but not “good investment options” for the longer term.

Worries over Europe’s debt crisis also continued to hurt sentiment, with Spain in focus on fears that efforts to recapitalise its ailing banks will add to pressure on its finances. HSBC Holdings Plc, the region’s largest bank, slumped 2.8 percent to its lowest since Jan. 16.

Shares of Chinese railway companies, which have surged since Beijing recently announced measures intended to bolster the debt-ridden and scandal-plagued sector, were among the top percentage losers.

China Railway Construction shed 3.8 percent in Hong Kong and 1.9 percent in Shanghai. Before Wednesday, China Rail Construction had jumped 13.4 percent in Hong Kong in the last seven trading sessions.

It is still up 43 percent this year, after plunging 54 percent last year, 6 percent in 2010 and 14 percent in 2009.

Shares seen barometers of growth in China were broadly weaker. PetroChina Co Ltd was among the top drags on benchmark indices in both markets, losing 2 percent in Hong Kong and 0.3 percent in Shanghai.

Chinese banks also suffered, but Agricultural Bank of China (AgBank) was further hurt by a Caixin report that its vice-president is under investigation for alleged financial crimes.

AgBank dived 4 percent in more than double its 30-day average volume in Hong Kong. It is currently down 6.6 percent in 2012.

VOLATILITY DRIVING INVESTORS TO DRINKS

But most Chinese developers eked gains, outperforming the market on expectation that Beijing’s targeted easing could mean an adjustment of home purchasing curbs. In a report dated May 29, JP Morgan said it is “time for re-entry” into the sector.

In Hong Kong , Longfor Properties rose 1.8 percent, while China Resources Land gained 1.1 percent. Shenzhen-listed China Vanke closed up 0.4 percent.

Also bucking broader market weakness on Wednesday, Kweichow Moutai jumped 1.4 percent after local media reported that the company expects its revenue to grow 51 percent this year.

Shares of Kweichow Moutai, which produces a premium Chinese liquor popular with the wealthy in the mainland and seen as a status symbol, are up more than 18 percent in 2012.

This compares with the 13 percent gain on the CSI300 and the 8 percent gain on the Shanghai Composite. While these benchmarks slumped more than 30 percent in 2011 and 2010, Kweichow Moutai has jumped 25 percent. (Additional reporting by Vikram Subhedar; Editing by Ramya Venugopal)

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