Hong Kong stocks hit their lowest closing level in more than three months on Friday, hit by a triple whammy of steep losses on Wall Street, falling commodity prices and fears of monetary tightening in China, although they trimmed losses following a late recovery in Shanghai.
The benchmark Hang Seng Index .HSI ended down 0.65 percent or 136.49 points at 20,726.18, after falling as much as 2.93 percent in morning trade. Earlier in the session, trading on the index was halted for about half an hour at the start and a Hang Seng Indexes spokesman said the problem was being investigated.
Market turnover soared to HK$104.16 billion ($13.40 billion), the highest level since November 27, from Thursday's HK$83.13 billion.
The China Enterprises Index .HSCE of top locally listed mainland Chinese stocks closed up 0.15 percent at 11,975.65.
Dealers cautioned against excessive optimism, saying the rebound may not last as fears of tighter monetary policy in China persisted.
"It's just following the pattern of the Shanghai index, which recovered some of its morning losses," said Alfred Chan, chief dealer at Cheer Pearl Investments. "Still, there's a lot of resistance and uncertainty in the market, so this is just a technical rebound probably."
Recently battered Chinese banks, which had slid in the past two sessions on news that the Chinese banking authorities had instructed some major banks to restrict lending and on fears of tighter monetary policy, recovered as investors hunted for bargains.
China Construction Bank (CCB) (0939.HK) was up 1.31 percent at HK$6.20. Bank of China (3988.HK) rose 0.52 percent to HK$3.89. Industrial and Commercial Bank of China (1398.HK) gained 2.27 percent to HK$5.85.
For the week, the Hang Seng index was down 4.3 percent, its worst weekly performance since November 2009, on worries that China's reining in of bank lending could damp economic growth.
"The Hang Seng Index is on a downward trend. It's heading towards the 20,000 level. Hopefully that's the critical support level," said Ben Kwong, chief operating officer at KGI Asia. "If overseas markets stabilise, the HSI could make a technical rebound next week."
"But we have to watch the U.S. dollar. It's quite telling of the diminishing risk appetite," he said. "The strength reflects investors locking in profit and dumping shares and is an indication of the unwinding of trades."
Funds that had been borrowing U.S. dollars at low interest rates to invest in higher-risk Asian stocks -- known as carry trades -- looked set to continue unwinding their positions as the U.S. dollar strengthened, dealers said.
HSBC (0005.HK) closed down 1.55 percent at HK$85.70, while Standard Chartered (2888.HK) retreated 4.55 percent to HK$182.40, tracking losses in their London-listed shares, on news that U.S. President Barack Obama had threatened to fight Wall Street banks on Thursday with a proposal to limit financial risk taking. [ID:nN21115923]
Dominic Chan, banking analyst with BNP Paribas, said their decline was just a knee-jerk reaction to the news.
"HSBC has been outperforming the market in the past few days. It's only down 2 percent today. I wouldn't read too much into it. It's just a market correction," Chan said. "HSBC and StanChart have been focused on the traditional banking business. I don't think proprietary trading accounts for a bulk of their earnings."
Energy-related stocks tumbled in heavy trade after oil prices topped $76 on Friday, up a few cents from one-month lows. [ID:nSGE60L05J].
Oil producer PetroChina (0857.HK) was down 0.11 percent at HK$9.17. Peer CNOOC (0883.HK) shed 2.36 percent to HK$11.56, and Sinopec (0386.HK) lost 1.25 percent to HK$6.34.
Denway Motors (0203.HK) bucked the overall weakness, rising 7.58 percent to HK$4.97, after the company said its controlling parent Guangzhou Automobile Group, a Chinese partner of Honda (7267.T) and Toyota (7203.T), was planning a back-door listing in Hong Kong through its Denway Motors unit. [ID:nTOE60L002]
SHANGHAI PARES LOSSES
China's key stock index fell 0.96 percent, with banking stocks very active as bargain-hunting late in the session lifted the index smartly from a one-month intraday low, hit after the announcement of a large initial public offering and several smaller ones.
The Shanghai Composite Index .SSEC ended at 3,128.588, after having fallen more than 3 percent intraday. Most actively traded Industrial and Commercial Bank of China (601398.SS) closed up 1.2 percent at 5.08 yuan after earlier dropping 1.39 percent.
The index, which lost 3 percent this week in its biggest weekly fall in five weeks, appeared to have found support at the 125-day moving average at 3,116 points, which it briefly breached during intraday trade.
"Banking stocks are now really very cheap," said Zheng Weigang, head of investment at Shanghai Securities. "The index is likely to continue its wild fluctuations in the 3,000 to 3,300 range in the near term amid a slew of uncertainties, including how far the government will tighten liquidity."
On Friday, China First Heavy Industries said it would launch an IPO next week for a listing on the Shanghai Stock Exchange to raise funds, including 8.4 billion yuan ($1.23 billion) for manufacturing projects and working capital. [ID:nTOE60K0BD]
That IPO, and several smaller offerings also announced on Friday, will bring the number of Chinese firms launching IPOs in January to more than 40, an unusually high monthly total in the modern Chinese stock market's 19-year history as the authorities seek to cool asset prices by increasing share supplies.
The People's Bank of China, the central bank, has also started to clamp down on excessive liquidity in Chinese markets by raising bank reserve requirement ratios and short-term debt yields over the past two weeks. [ID:nTOE60K02U]
"It appears the government is worrying about the health of the economy, including a possible rise in inflation," said a Chinese fund manager in Shanghai, who declined to be quoted by name as he was not authorised to talk to the media.
"So the stock regulator is pushing so many IPOs onto the market and the central bank is aggressively tightening liquidity."
Banks, which will bear the brunt of monetary tightening, closed mostly higher after falling across the board in the morning.
Nine banks were the day's most-active stocks, with Construction Bank of China (601939.SS) ending up 2.21 percent at 6.02 yuan and Minsheng Bank (600016.SS) rising 1.97 percent to 7.78 yuan.
Trust firms and brokerages topped the day's losing list amid worries that a weak stock market would hurt their business.
Anxin Trust (600816.SS) was the top faller, closing down 5.79 percent at 19.69 yuan, while Sinolink Securities (600109.SS), the second-biggest loser, dropped 4.33 percent to 22.76 yuan.
Losing stocks prevailed over gainers by 741 to 163 while volatile trading pushed turnover up to 163 billion yuan ($24 billion) from Thursday's sluggish 142 billion yuan.