HONG KONG - Mainland China shares outshined Asia with their best day in a month on Friday, while Hong Kong markets snapped a five-day losing streak, as investors cheered local news reports pointing to increased foreign participation in the A-share market.
Traders said Hong Kong gains accelerated after investors rushed to cover short positions on exchange-traded funds based on the Hang Seng Index at around 21,800, as the index bounced from Thursday's five-month closing low.
The Hang Seng Index closed up 2.3 per cent at 22,013.6, cutting weekly losses to 0.3 per cent. The China Enterprises Index of the top Chinese listings in Hong Kong jumped 3.1 per cent to 10,587.3 on Friday, but still slipped 0.6 per cent this week.
Gains on Friday were their best since Jan. 2, their first in six days and came in bourse turnover that despite being the best since April 5, was still only more than half of the year's heaviest on Feb. 4.
The CSI300 of the leading Shanghai and Shenzhen A-share listings closed up 2.8 per cent on the day and 2.9 per cent on the week at 2,533.8. The Shanghai Composite Index gained 2.1 per cent on Friday and 1.7 per cent this week.
Friday's gains were the best since March 20 for both indexes and elevated them to their highest closing levels since March 27. Shanghai bourse volumes were the best in four weeks, but was still only two-thirds of the year's heaviest on Feb. 4.
"Increased foreign interest will mean more liquidity for the A-share market, this will boost brokerages," said Cao Xuefeng, Chengdu-based head of research for Huaxi Securities.
The brokerage sector surged after the 21st Century Business Herald reported regulators had resumed taking quota applications under the renminbi qualified foreign institutional investor (RQFII) scheme after a two-month suspension, citing Bosera Asset Management.
Reports of discussions between regulators and MSCI index managers on the potential addition of A shares into their emerging market indexes also further buoyed sentiment, in a move that could drive more passive foreign funds into the mainland. China's largest-listed brokerage CITIC Securities spiked 7 per cent in Hong Kong and 5.5 per cent in Shanghai. The smaller Founder Securities soared 8.9 per cent in Shanghai and is now up more than 64 per cent for the year.
CITIC was further boosted by an upgrade by UBS analysts from"sell" to "neutral", anticipating China's largest listed brokerage will gain market share at the expense of smaller ones and strong growth in its margin financing business.
BOUNCE FROM LOWS AHEAD OF Q1 EARNINGS SEASON
The Chinese banking sector was also a standout outperformer at the end of a week littered with headlines about regulations on the proliferation of wealth management products, local government debt and money laundering.
Part of the problem, traders said, stems from the fact there is a lack of consensus among China's various policy makers, chiefly its central bank and its banking, securities and insurance regulators.
Industrial and Commercial Bank of China (ICBC) jumped 4 per cent in its best day since Oct. 11 in Hong Kong, but is still down 4.4 per cent for the year. Its Shanghai listing rose 1.2 per cent.
Mid-sized lender China Minsheng Bank surged 8.1 per cent in Shanghai and 5.6 per cent in Hong Kong. First quarter corporate earnings season is due to start next week, with Minsheng's expected next Wednesday.
In a note to clients, Goldman Sachs China equity strategists swapped China retail for cement H-shares on a stronger fixed asset investment outlook, while favouring banks with earnings and valuation support and utilities.
Goldman's strategy team also cut their end-2013 targets for the China Enterprises Index from 13,700 to 12,400 and the CSI300 from 3,000 to 2,800, citing the lower-than-expected first quarter GDP growth figure that China posted earlier this week.
Commodities-related sectors rebounded from multi-month lows following a mild rebound in the physical commodity markets.
China's biggest gold miner Zijin Mining rose 2.7 per cent in Hong Kong and 1.9 per cent in Shanghai.
Zijin's Hong Kong shares had on Thursday closed at their lowest since October 2011. It dived 8.8 per cent this week, its worst weekly showing in almost a year after a brutal sell-off in the physical gold market earlier this week.
Shares of Lenovo Group surged 9.5 per cent from Thursday's 5-1/2-month closing low after the company said it was in preliminary talks about a potential acquisition.
This followed a media report that IBM Corp was negotiating the sale of its x86 server hardware business to the Chinese computer maker.