Hong Kong shares neared a 19-month high on Monday, as investors continued to chase Chinese property and coal sectors despite signs suggesting that the rally in some large caps has become stretched.
The Hang Seng Index went into the midday trading break up 0.1% at 23,344.3, nearing its highest level since June 2011 posted last Thursday. The China Enterprises Index of top Chinese listings rose 0.1%.
In the mainland, the Shanghai Composite Index and the CSI300 of top Shanghai and Shenzhen listings each rose 0.2%. Gains in Hong Kong and China came in healthy trading volumes.
But all four indexes have relative strength index (RSI) readings either near or at their highest since October 2010, suggesting they are technically overbought.
"The rally is starting to look like it's gone a bit too far ahead of fundamentals, with fast money chasing the high beta names," said Edward Huang, equity strategist at Haitong International Securities.
On Monday, HSBC Holdings climbed 1.2% after after global regulators gave banks four more years to build up cash buffers so they can use some reserves to help struggling economies grow.
In Hong Kong, Chinese coal producers rose on hopes increased mainland demand will boost margins as temperatures in China plunged to their lowest in almost three decades. Higher coal prices will, however, crimp the profitability of power producers.
Despite coal prices declining last week, according to a note by Goldman Sachs dated Sunday, Chinese coal stocks have climbed since Beijing said they would no longer intervene in annual coal price negotiations between sellers and utilities starting in 2013.
On Monday, Yanzhou Coal Mining rose 2.3% to return to its highest levels in Hong Kong in almost eight months, while China Resources Power dipped 3.1%, slipping further from a 4-1/2-year high set on Jan. 2.
CHINA PROPERTY SHARES DIVERGE
Chinese property stocks in Hong Kong extended a strong start to the year in Hong Kong, but were key underperformers in mainland markets with mainland investors electing to take some profit after the sector's strong showing in 2012.
Over the weekend, Beijing unveiled detailed measures, including requiring local governments to allocate enough money and offering loan subsidises for developers, to ease funding pressure on its public housing programme this year.
Poly Real Estate fell 1.6% in Shanghai from its highest close since July 2009, which was set on Friday. The Shanghai property sub-index was a key underperformer among sectors, down 1.2%.
China Resources Land jumped 3.2% to a record high since it listed in Hong Kong in 1997, shrugging off a downgrade from "buy" to "neutral," by Bank of America-Merril Lynch analysts, who believe that its recent rally has priced in its positive rental and property sales and potentially lower debt levels.
China Resources Land, among the larger property developers in the mainland, has made a strong start to 2013 after leaping 69% in 2012.
But its percentage gain on the day was dwarfed by sector rivals, whose shares have a bigger beta values, suggesting that they tend to move by a bigger magnitude than the broader market.
Shares of Shimao Property – which has a beta value of 1.9, suggesting any move in its price could double the broader market's — jumped 5.7% to its highest since September 2009 as investors cheered its plan to issue U.S. dollar senior notes to refinance existing debt.
Tapping the debt market suggests Chinese companies are unlikely to tap equity markets to raise funds as developers seek to increase inventories to meet returning demand, suggesting equity stakes will not be diluted.
This follows similar successful moves made by Hopson Development and Country Garden last week to tap the credit market to raise funds, which were met with robust demand. On Monday, Hopson shares rose 6%, while Country Garden rose 3.7%.
