(Reuters) - China shares snapped a nine-week losing streak, but on Friday finished down from the week's highs on fears that capital outflows would drag on markets.
The Shanghai Composite Index slipped 1.3 percent on the day, but in Hong Kong, the most popular gateway for foreign investors to get exposure to China, the Hang Seng Index and China Enterprises Index of the top mainland listings in the territory ended up 0.6 and 1.1 percent, respectively.
On the week, the Hang Seng Index firmed 3.3 percent, while the China Enterprise Index gained 6.2 percent and the Shanghai Composite rose 3.8 percent, mainly due to advances early in the week following economic data that sparked expectations of aggressive monetary policy easing.
The outperformance this week of H-shares, or Chinese shares listed in Hong Kong, relative to their mainland counterparts, could suggest that foreign investors are more bullish than mainland investors, bruised after the Shanghai Composite lost more than 33 percent over the past two years -- among the worst performance in Asia.
Data on Friday that showed China recorded declines in forex reserves in November and December, the first consecutive fall since the first quarter of 2009, as a narrowing trade surplus and an outflow of speculative funds reversed the accumulation of dollars.
It's been very sentiment-driven this past week. The markets are very fragile, driven by news flows, said Hong Hao, a Beijing-based global equity strategist with CICC.
With growth slowing, investors are not taking too well to expectations of more outflows, which could hurt liquidity and become a source of weakness for mainland markets, he said.
On Friday, Chinese financials were particularly strong in Hong Kong, where overall turnover stayed relatively high, despite declining from Thursday. Industrial and Commercial Bank of China (ICBC), the top boost to the Hang Seng Index, gained 2 percent.
HSBC Holdings Plc, Europe's largest bank and the Hang Seng's single biggest weight, rose 0.8 percent after better-than-expected European bond auctions alleviated fears about that region's debt crisis.
Also supporting the market this week were several measures announced to protect mainland securities investors following last weekend's National Financial Work Conference, held once every five years since 1997.
Growth-sensitive China Shenhua Energy Co Ltd was among beneficiaries after its parent company said it was increasing its A-share stake in the country's largest coal producer, but it was among the top drags in Shanghai on Friday, shedding 0.6 percent.
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With the China and global macroeconomic outlook not getting clearer, benchmark indices have been repelled off technical resistance this week.
The Hang Seng Index has been capped at 19,242, its December high, while the Shanghai Composite Index has been capped at 2,300, a support level that it bounced off on at least three occasions since July 2010 until a breaching in mid-December.
China will report fourth-quarter GDP data on Jan. 17, along with December industrial output, investment and retail sales data, which could spur gains and help benchmark indexes break technical resistance.
Meanwhile, a slew of profit warnings from China-exposed companies weighed on Hong Kong markets on Friday. Of these, Midland Holdings Ltd was of particular interest, given that the property sector in China is a chief economic concern.
Midland dived after warning late on Thursday it could record a significant decline in net profit for 2011, adversely affected by sluggish property market transactions in Hong Kong and in mainland China.
It lost 6.1 percent on the day to hit the lowest in almost a month, on volume that was four times its 30-day average.
We are expecting more profit warnings ahead of the earnings season that starts in late February, but these will tend to be more macro-related rather than company-specific, Alan Lam, Julius Baer's Greater China equity analyst, told Reuters.