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Friday, August 31, 2012

Hong Kong, China shares weak, set for August losses - Reuters

Fri Aug 31, 2012 1:05am EDT

(Updates to midday)

* HSI down 0.3 pct, CSI300 flat

* Indices set for monthly losses

* Citic Pacific dives, plagued by iron ore weakness

* China insurers lifted by policy to boost medical coverage

By Clement Tan and Vikram Subhedar

HONG KONG, Aug 31 (Reuters) - Hong Kong shares slipped, while China hovered near levels not seen since early 2009 on Friday, with both markets set to end August in the red after first half corporate earnings disappointed with little prospect of imminent recovery.

Turnover was sluggish ahead of an annual meeting of central bankers in Wyoming later, with the market now expecting Federal Reserve chairman Ben Bernanke to keep easing expectations intact going into September, but short of delivering fresh measures.

Investors have in August rolled into stocks of companies that were able to project resilient earnings growth in a sluggish economic environment, with little prospect of next month's economic data for China showing improvement.

The CSI300 Index of the top Shanghai and Shenzhen listings was flat at midday, remaining at its lowest since March 2009 and poised for a third-straight monthly loss. It is down 5.2 percent on the month, compared to a 2.5 percent loss for the Shanghai Composite Index.

The Hang Seng Index closed down 0.3 percent at 19,492.2, holding above the 38.2 percent Fibonacci retracement of its rise from June lows to August highs at about 19,443. The benchmark is down 1.5 percent in August, set for its first monthly loss in three.

"People have been generally defensive in August, with earnings visibility over-ridding other considerations, such as low valuations," said Alan Lam, Julius Baer's Greater China equity analyst.

"September will be very busy policy-wise, so there might be a switch into cyclical names. There are meetings in Europe and the U.S., but I don't expect China to do too much ahead of their 18th National Congress meeting likely in October," Lam added. He was referring to a meeting, likely in October, that will mark the start of a once-in-a decade political leadership transition.

Beijing is expected to post China's official manufacturing managers' index reading on Saturday, which is likely to ease to a 9-month low of 50 in August after a preliminary survey last week showed China's factories contracting in August by the most in nine months.

Citic Pacific, one of China's leading iron ore miners, tanked 5.5 percent to its lowest since April 2009, plagued by iron ore prices that lingered near three-year lows.

On Friday, Chinese insurers were outperformers in the mainland. The country's top two players in the sector were the top boosts on A-share market indices. China Life Insurance rose 2.7 percent, while Ping An gained 0.8 percent.

The rises were linked to a statement by China's State Council, or cabinet, that the government will shoulder at least 50 percent of the cost of treating critical illnesses and allow local governments to tap on existing funds to purchase commercial insurance for serious illness.

Morgan Stanley analysts said this will not only improve the quality of medical care, but also boost the demand for related medical products.

ESPRIT, LI& FUNG AT AUGUST EXTREMES

Within the Hang Seng Index, August's top performing stocks are skewed towards those that rely on relative safety offered by the Chinese consumer as investors pulled money out of cyclical sectors most linked to a slowing economy at home and abroad.

Top performing stock Esprit Holdings is up 28.5 percent this month as it rebounded from a year-low of HK$8.83 marked on July 25. Macau casino company and the latest entrant into the Hong Kong benchmark Sands China is the second-best performer and is up nearly 20 percent.

At the other end of the spectrum, shares of Li & Fung , exporter for top U.S. retailers such as Wal-Mart , are down 18 percent and poised for the worst monthly performance since the peak of the financial crisis in October 2008.

Suffering from limp demand from its core markets in the U.S., Europe and China, the company reported on Aug. 9 a sharp drop in profits as well as shrinking margins sending investors scurrying for the exits and wiping out about a fifth of the company's value in a day. (Editing by Ron Popeski)


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