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China shares slide on RRR hike, property tax talk; HK lower

Published 01/17/2011, 04:02 AM
Updated 01/17/2011, 04:04 AM
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(Updates to close)

* Shanghai shares slide 3 pct as govt battles inflation

* Hang Seng index eases 0.5 percent; H-shares weigh

* HK commercial property plays rise on rent outlook

* China to begin mini-QFII on trial basis - sources

By Vikram S.Subhedar and Lu Jianxin

HONG KONG/SHANGHAI, Jan 17 (Reuters) - Chinese shares fell 3 percent, testing a strong near-term chart support level, after a rise in lenders' reserve requirements and talk of a property tax in Shanghai kept bank and developer stocks under pressure.

China's key stock index extended losses into the close after the People's Bank of China announced on Friday a rise in lenders' required reserves for the fourth time in just over two months as it battles inflation.

Hong Kong's Hang Seng fell 0.5 percent, easing from a two-month high, and reversed earlier mild gains as advances in technology and local commercial property shares were not enough to keep the benchmark in the black.

China's central bank raised banks' required reserve ratios by another 50 basis points, effective Jan. 20, as it makes fighting inflation one of its top priorities for the new year.

"The RRR hike strengthened expectations of further tightening steps, including a possible interest rate hike," said analyst Li Wenhui at Huatai Securities in Nanjing.

"But Monday's fall appeared to be excessive as a RRR hike is not such a stern tightening step," he said. "The index should be able to find a support soon, possibly around 2,700 points."

The PBOC move will drain an estimated 360 billion yuan ($55 billion) from the market.

Adding pressure on property shares, Shanghai's mayor said on Sunday that one of the city's main tasks this year would be to prepare for the trial run of a property tax to curb speculative investments in the real estate sector.

Top lender ICBC fell 2.8 percent, while the biggest listed property developer, China Vanke , tumbled 7.0 percent.

The property sub-index fell 5.4 percent.

Commodity shares were also hit. Gold producer Zijin Mining closed 3.9 percent lower while Jiangxi Copper dropped 4.0 percent.

Shanghai's key stock index breached a support at 2,721, a previous low, and is testing a level that had provided stiff resistance in the third quarter of last year.

HK LOWER, CHINA BANKS WEIGH

Mainland banking shares were the biggest drag on the Hong Kong market and offset gains in local commercial real estate developers, which extended their recent outperformance that has come on the back of a robust outlook for rents and as a play on asset inflation.

One trader at a Japanese bank in Hong Kong said there were reports that recent commercial property contract renewals had seen rents rise by 56 percent to 140 percent.

Low-to-near-zero vacancy rates in the city's key business districts and sustained demand will keep office rents strong through the year, said Keith Yeung, regional head of real estate research at Mirae Asset, in a note.

Li Ka-shing-controlled Hutchison Whampoa rose 2.4 percent, the top gainer on the Hang Seng, followed by Wharf Holdings , which rose 1.7 percent.

However, shares of the heavily weighted mainland banks tracked declines of their Shanghai-listed counterparts and weighed on the broader market.

"Investors should be cautious that the recent Hong Kong market rally is concentrated on some large-cap stocks with heavy weightings in the HSI rather than market-wide," said Alan Lam, Greater China analyst at Julius Baer in Hong Kong.

"We have also seen recent corrections in some Asian markets last week due to capital withdrawal," said Lam, who recommends investors should look to book some profits when the Hang Seng index nears the 24,500 level. (Additional reporting by Krishna Kumar in SYDNEY; Editing by Alex Richardson) Pan-Asia...... Japan........ S.Korea.... S.E. Asia............ Hong Kong... Taiwan..... Australia/NZ......... India....... China......

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