China shares retreat further from 7-1/2 mth high, drags Hong Kong

Last Updated: Thu, Jan 17, 2013 06:21 hrs

* HSI -0.4 pct, H-shares -0.9 pct, CSI300 -1.1 pct

* China Life Insurance hit by Credit Suisse downgrade

* Evergrande tumbles after HK$4.4 bln new share issue

* ETFs among most shorted in HK, betting on further weakness

By Clement Tan

HONG KONG, Jan 17 (Reuters) - Onshore China shares retreated further from a 7-1/2-month high on Thursday, reversing early Hong Kong gains, with growth-sensitive counters leading the slide ahead of a slew of major Chinese economic data being released on Friday.

The Hang Seng Index went into the midday break down 0.4 percent at 23,271 points after earlier testing chart resistance at 19-1/2 month highs at about 23,500. This level has stymied index gains for more than two weeks.

The China Enterprises Index of the top Chinese listings fell 0.9 percent, outshining mainland markets. The Shanghai Composite Index and the CSI300 of the top Shanghai and Shenzhen A-shares each sank 1.1 percent.

If losses persist, this would be their second-straight loss after they hit their highest since early June on Tuesday.

Both onshore indexes jumped on Monday, partly triggered by comments from China's chief securities regulator that foreign investment quotas for A-shares could increase ten-fold from current levels.

Hong Kong-listed exchange-traded funds (ETFs) tracking both onshore and offshore China listings were among the most shorted at midday, suggesting some investors are betting on more index losses.

"I think people are still just taking profit from the out-sized jump in the A-share market earlier this week," said Hong Hao, chief equity strategist at Bank of Communication International Securities.

"We are early in this rotation into cyclicals at the start of a new economic cycle in China, so some are still operating as in a bear market, selling into strength and clocking profits by rotating swiftly between sectors," Hong added.

Beijing is likely to post a rebound to 7.8 percent growth in the fourth quarter of 2012 on Friday, its first quarterly rise in eight. December data for housing prices, urban investment, industrial output and retail sales are also expected.

On Thursday, China Life Insurance tumbled 2.4 percent in Hong Kong and 3.6 percent in Shanghai despite posting a 40 percent year on year increase in premium income in December, lifting growth to 1 percent for 2012.

Hong Kong shares of China's largest insurer were also hurt by a downgrade from "neutral" to "underweight" by Credit Suisse analysts on Thursday, who said its high valuation relative to sector peers is not justified given an unfavorable 2013 outlook.

Thursday's losses almost pared gains on the week for China Life's Hong Kong listing. It is still up more than 3 percent in 2013 following a 32 percent surge last year. The Hang Seng Index is up 2.7 percent in 2013 after jumping 22.9 percent in 2012.

According to Thomson Reuters StarMine, China Life is currently trading at a 0.7 percent premium to its historical median forward 12-month earnings multiple. Ping An Insurance , its biggest rival, is currently trading in Hong Kong at a 32 percent discount.


Evergrande tumbled 6.7 percent to HK$4.34, slightly below the HK$4.35 level at which the Chinese developer priced one billion new shares on Thursday, which was a 6.5 percent discount to its Wednesday's close.

Thursday's losses took Evergrande to its lowest since Jan. 2, hurting most of its Chinese property sector rivals listed in Hong Kong. China Resources Land sank 3.1 percent to its lowest in a week.

Hong Kong property counters saw modest gains after no harsh property curbs were included in maiden policy speech by the territory's new chief executive on Wednesday, which instead announced an increase in land supply.

Sun Hung Kai Properties inched up 0.4 percent to its highest since April 2011. Henderson Land gained 0.5 percent, stretching gains in 2013 to more than 8 percent after spiking 42 percent in 2012.

BNP Paribas said the Hong Kong government's discussion with developers to accelerate pre-sale of residential units could moderate property price growth and lower the risk of further tightening measures, which would be positive for developers' launches and for the sector.

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