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HK, Shanghai stocks up, auto shares calm

Published 12/29/2010, 01:02 AM
Updated 12/29/2010, 01:08 AM

* HK rises 1.2 pct, Shanghai shares barely changed

* China Rare Earth jumps as China cuts export quotas

* Auto stocks trim falls after tax incentives end confirmed (Updates to midday)

By Donny Kwok and Samuel Shen

HONG KONG/SHANGHAI, Dec 29 (Reuters) - Hong Kong and Shanghai stocks rebounded on Wednesday morning as investors snapped up financial and property stocks after the recent sell off, while China auto counters reacted calmly to the end of tax incentives for small cars.

The benchmark Hang Seng Index was up 1.17 percent at 22,886.09 at the midday trading break, its biggest single-day percentage gain in more than a week.

"It was a rebound from the recent selloff after the market found support at around 22,500," said CASH Asset Management Director Patrick Yiu. "Tight liquidity due to an absence of participants will limit the upside to about 23,000."

The China Enterprises Index of top locally listed mainland Chinese companies rose 1.33 percent to 12,473.83.

China Petroleum & Chemical Corp )(Sinopec) climbed 1.8 percent and CNOOC Ltd rose 2.3 percent. Developer Cheung Kong (Holdings) Ltd advanced 2.5 percent.

China Construction Bank Corp rose 2 percent in its biggest percentage gain in four weeks. Industrial and Commercial Bank of China Ltd gained 1.3 percent.

Auto stocks, which were bruised last week by Beijing's policy to limit new car registrations in the capital, were slightly weaker on Wednesday, after government confirmation of an end to tax incentives for small cars next year..

In Shanghai, top automaker SAIC Motor Corp Ltd lost 0.1 percent during morning trading, while smaller rival Tianjin FAW Xiali Automobile Co Ltd was down 1 percent.

Hong Kong-listed auto stocks trimmed earlier losses with Geely Automobile Holdings Ltd down 0.9 percent, Guangzhou Automobile Group Co Ltd off 0.2 percent. Brilliance China Automotive Holdings Ltd rose 2.8 percent and Dongfeng Motor Group Co Ltd gained 1.1 percent.

Analysts expect slower sales growth for automakers in the year ahead after this strong buying by consumers this year.

"The removal of tax incentives may affect small car makers such as Geely, while auto stocks as a whole may worth to hold for long term if new car restriction is not spreading," Yiu from CASH Asset Management said.

China Rare Earth Holdings Ltd rose more than 12 percent to its highest in four weeks before easing to an 11 percent gain. China effectively cut export quotas by 35 percent for the first half of 2011 compared with a year earlier, further shrinking supplies of metals needed to make a range of high-tech products.

SHANGHAI EDGES HIGHER, CONSUMER STOCKS UP

China's stock market stabilised following a near 4 percent drop in the last two days, as investors started buying property and financial shares after tightening fears triggered by Saturday's interest rate rise pushed down valuations.

Consumer stocks rose on expectations that they would benefit from government policies, but car makers were hit by news that the government will end tax incentives for small cars next year.

With valuations of blue chips attractively low and policy concerns largely priced in, the index may be near its bottom, although a strong rally was unlikely in the short term because of seasonal liquidity tightness toward year-end, analysts said.

"Banking and property shares are already cheap, so if they don't fall a lot, the index will not either," said Li Feng, Shenzhen-based trader at Fortune Securities. "What the market is waiting for is some kind of stimulus, such as signs of economic recovery in the United States for example."

The benchmark Shanghai Composite Index was up 0.1 percent by the midday break at 2,735.8 points, after closing on Tuesday at the lowest level in nearly three months.

Most consumer stocks rose, as investors bet that retailers and dairy firms would benefit from government support toward consumption next year and would be little affected by tightening.

Inner Mongolia Yili Industrial Group Co Ltd, one of China's biggest diary producers, rose 1.8 percent, while supermarket chain Beijing Hualian Hypermarket Co Ltd rose 2 percent.

Property stocks rebounded after two consecutive days of losses, shrugging off a top government official's reaffirmation of real estate curbs.

Beijing's determination to curb the real estate market was "unshakable", and the government would continue to crack down on home speculation using a combination of fiscal, financial and regulatory measures, the official Xinhua News Agency reported on Wednesday, citing Vice Premier Li Keqiang.

China Vanke Co Ltd, the country's biggest listed developer, rose 0.4 percent, while rival China Merchant Property Development Co Ltd was up 0.5 percent.

Banks, which had been the main drag on the market in the past two days, also rebounded on Wednesday, despite hints from the industry's top regulator that China's biggest lenders might be subject to higher capital requirements.

Banks that are considered "systematically important" may be subject to higher capital adequacy rules as regulators aim to build up counter-cyclical capital buffers in the financial system, state media cited Liu Mingkang, chairman of the China Banking Regulatory Commission, as saying.

Industrial and Commercial Bank of China Ltd, China's biggest lender, gained 0.7 percent. Bank of China Ltd, the biggest foreign exchange lender, rose 0.3 percent. (Editing by Chris Lewis)

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