Hong Kong shares edged up to a three-week high on Thursday as a rally in China Life and other insurers on the back of stabilising premium incomes helped the benchmark stock index outperform its Asian peers.
But gains were limited in thin trading volume as market participants cautiously eyed further developments in Europe, with a key Spanish bond auction later in the day set to test investors' confidence in that country's debt-laden economy.
"Yesterday's 1 percent rally in the Hang Seng looked to be short-lived considering the negative spillover from global markets," said a trader at an Asian brokerage in Hong Kong.
The Hang Seng index rose 0.4% to 20,856.5, its highest since March 28. The China Enterprises index was up 0.8% with the 3.2% bounce in shares of China Life providing the biggest boost to the benchmark.
On the mainland, the Shanghai Composite fell 0.1% a day after posting its biggest one-day percentage rise more than two months.
Insurers have been drawing healthy investor interest after sharply underperforming the market last month.
Shares of China Life and smaller rival Ping An fell more than 16% and 13%, respectively, in March, compared with a 5.2% drop in the Hang Seng index. This month China Life is up 4.5% and Ping An is up 8.4%, outpacing the benchmark's 1.5% rise.
Deutsche Bank analysts said in a research note that while new business growth is likely to remain challenging for Chinese insurers, these concerns are already factored into their share prices.
First-quarter life insurance premium growth ranged from a drop of 7.5% to an increase of 16% year-on-year, according to Deutsche Bank, which has China Life and China Pacific Insurance Corp as its top picks.
China Life shares currently trade at a 32% discount to their median forward 12-month price-to-earnings multiples, according to Thomson Reuters Starmine.
Elsewhere, shares of Chinese Internet firm Tencent Holdings extended gains and rose 0.8% to hit a fresh record high as retail investors continued to buy the stock.
Overall trading activity remained sluggish in Hong Kong with midday turnover barely crossing HK$20 billion ($2.58 billion) by the end of the morning session, reflecting investor caution.
Doubts over Europe's ability to stick to harsh measures to slash high public debt began to grow when Spain abruptly relaxed its deficit targets earlier this month, and Italy said on Wednesday its priority was now reviving economic growth, delaying by a year its budget balancing goal.
