China shares spiral towards 2009 lows, cap Hong Kong gains

Last Updated: Tue, Nov 27, 2012 05:20 hrs

* HSI +0.1 pct, H-shares +0.3 pct, CSI300 -0.7 pct

* Shanghai Composite down 1 pct, below 2,000 points

* Sany at lowest in a year, shrugging off industrial profits data

* CRE at 6-mth high on reported interest in Carrefour

By Clement Tan and Vikram Subhedar

HONG KONG, Nov 27 (Reuters) - Onshore Chinese shares stumbled towards their lowest since 2009 on Tuesday, dragged by weakness in growth-sensitive companies and limiting gains in Hong Kong on fears that growth in China could be compromised by banks' limited lending capacity.

The Hang Seng Index rose 0.1 percent by the midday break, while the China Enterprises Index of the top Chinese listings in Hong Kong was up 0.2 percent. Midday bourse turnover was at the highest since Nov. 15.

In the mainland, the CSI300 of the top Shanghai and Shenzhen listings shed 0.7 percent, while the Shanghai Composite Index was down 1 percent in the highest midday volume in two weeks. Both are now near their lowest since early 2009.

If losses persists, it will be the first time since January 2009 that the Shanghai Composite Index closes below the 2,000 mark. In November to date, it has lost 3.4 percent, while the CSI300 slid 4.2 percent, compared to the 0.1 percent gain for the China Enterprises Index.

"This divergence between A and H share performance will continue at least until the year's end. There is a long list of A-share IPOs waiting for approval and that's not going to impress investors," said Larry Jiang, chief strategist at Guotai Junan International Securities.

On Tuesday, industrial counters were weak in the mainland despite official data from the National Bureau of Statistics showing Chinese industrials returning to profit growth in October.

Shanghai-listed Sany Heavy Industry declined 2.6 percent to its lowest since September 2010.

Over the past month analysts have cut forward 12-month earnings forecasts for MSCI China industrials by 2.7 percent, the sixth straight month of cuts, according to Thomson Reuters I/B/E/S.

Much of the bearishness on the day stemmed from a report in the state-run China Securities Journal newspaper that Basel III requirements could raise the capital adequacy ratio at the country's six biggest banks by up to 50 basis points, potentially limiting their capacity to lend.

The banking sector was mixed in mainland markets, with Industrial and Commercial Bank of China (ICBC) and Bank of China, among the six banks named, slipping 0.3 and 0.4 percent, respectively.

Investors can now turn to China's annual Central Economic Work Conference, which is typically held in mid-December, for clues on the tone of economic policies in 2013.

The China Securities Journal also reported on Tuesday that China is likely to target growth of 7 to 7.5 percent and expected to maintain their proactive position on fiscal policy and stay prudent on monetary policy -- denting hopes for more aggressive policy easing.


But in Hong Kong, the Chinese banking sector was broadly higher. ICBC was up 0.4 percent, while Bank of Communications gained 0.9 percent.

China Resources Enterprises (CRE) led percentage gains among Hang Seng Index components, rising 2.2 percent to a six-month high on media reports that it plans to purchase a stake in French retailer Carrefour SA.

After rebounding 3.7 percent from a Nov. 15 low, the Hang Seng Index is now just 1.3 percent from Monday's close to 2012 intra-day highs, set on Nov. 2.

"In Hong Kong, the current high for the year will likely cap gains for the year," Guotai Junan's Jiang said.

"Investors will be looking to lock in profits as we head into year's end and are looking for signs of policy reforms in China before committing to the next leg up," Jiang added.

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