Hong Kong shares declined on Monday, reversing early gains after hitting a six-month high as weakness in energy names outweighed a muted response to Beijing's second cut in bank reserve requirements.
Mainland markets ended higher on the day, but like Hong Kong, finished at the day's lows. While Chinese financials were the tops boosts on benchmark indices in both markets, gains were pared as investors took profits on the year's outperformers.
The Shanghai Composite Index closed up 0.3 percent at 2,363.6, after opening just shy of its 125-day moving average, seen at 2,389.9. The CSI300 Index, a broader measure of Shanghai and Shenzhen listings, gained 0.1 percent.
The China Enterprise Index of the top mainland listings in Hong Kong slipped 0.4 percent. The broader Hang Seng Index ended down 0.3 percent at 21,424.8, after it opened above 21,725.7, the top of a chart gap at that opened up between Aug. 4 and 5.
There's not much fresh buying today. Investors sold into strength after the Hang Seng Index and some financial stocks opened above key chart levels this morning, said Jackson Wong, vice-president of equity sales at Tanrich Securities.
Wong added that investors were taking profit on 2012's outperformers after strong gains this year, viewing Beijing's Saturday announcement as more of a boost to credit supply than a clear easing move.
Turnover in Hong Kong increased from Friday, but was about 27 percent less than on Dec. 1, the day after Beijing cut bank reserve requirements for the first time in almost three years. Traders said volumes were crimped on the day partly due to U.S. markets closed on Monday for a public holiday.
China Petroleum & Chemical Corp (Sinopec), which through Friday had been up 14.6 percent in 2012 and among this year's leading lights, led weakness among Chinese energy names. It bled 5.5 percent in more than twice its 30-day average volume, and now is up only 8.3 percent year-to-date.
Traders cited at least two brokerage downgrades of Sinopec, including one from Citi. Thomson Reuters Basis Point reported on Monday that a portion of a $5 billion loan the Chinese oil company took last year was on offer in the secondary market for a steep discount.
Energy weakness completely outweighed muted strength in Chinese financials. The mainland's largest lender, Industrial and Commercial Bank of China Ltd (ICBC), pared early gains to end up 0.2 percent.
Market watchers said Beijing's latest move would boost lending capacity in the world's second-largest economy by an estimated 350-400 billion yuan ($55.6 billion-63.5 billion), but money markets remained tight in the mainland on Monday.
GROWTH-SENSITIVE SECTORS LIFT SHANGHAI
In Shanghai, growth-sensitive sectors such as materials and energy led gains in A-share turnover that was 24 percent higher than Friday, was below that of Dec. 1 -- the day after Beijing's previous reserve requirement cut.
As a result of that first cut, the Shanghai Composite Index gained 2.3 percent on Dec. 1, while the China Enterprises Index soared 8.1 percent and the Hang Seng Index jumped 5.6 percent.
On Monday, the Shanghai energy sub-index was up 0.4 percent, while a similar gauge for materials gained 0.5 percent. PetroChina Co Ltd and China Shenhua Energy Co Ltd rose 1.1 and 0.5 percent respectively.
Part of the caution in markets was attributed to lower-than-expected data for January, with statistics on Saturday suggesting that average home prices in China fell for a fourth straight month in January, adding to worries about a hard landing for the world's second-largest economy.
But on Monday, the sector was also broadly higher, largely on a short squeeze after Beijing's latest policy move. In Hong Kong, Agile Property Holdings Ltd, for which short selling accounted for 10.5 percent of total turnover on Friday, jumped 7.1 percent.