Hong Kong and Shanghai shares extended their weekly gains, as better-than-expected global economic data this week spurred investors to take advantage of the low valuations and buy into financials and growth-sensitive sectors.
The Hang Seng Index posted its fifth weekly gain, rising 1.2 percent. On Friday, it ended up 0.1 percent to 20,757, its highest close since Aug. 5. CNOOC Ltd and Ping An Insurance were among the Hang Seng's major gainers this week, jumping more than 5 percent.
Fears of a global economic slowdown eased after data this week showed U.S. factory activity expanded at its strongest pace in seven months in January and Germany's manufacturing sector grew for the first time in four months.
Investors have been rotating from defensive sectors into financials and cyclicals on their low valuations, since earnings expectations have now been revised quite adequately, Hong Hao, a Beijing-based CICC global strategist, told Reuters.
In a note this week, Hong said the market has been buying defensive sectors because of their lower risk and less cyclical nature, driving up the valuation of these sectors.
In any part of an economic cycle, low valuation is our best defense, he said.
The Shanghai Composite Index rose for the third-straight week, rising 0.5 percent to close at its highest in two months. On Friday, it gained 0.8 percent to 2,330.4, holding above the 2,300-2,320 level that capped gains this year to date.
The China Enterprises Index of the top Chinese listings in Hong Kong rose 0.2 percent on Friday and 1.4 percent this week, closing at 11,605.6 points, its highest since Aug 4.
In a sign that investors are switching out of high valued stocks, telecom major and 2011's market favourite China Unicom was among the biggest drags in Hong Kong this week.
The stock, which surged 47 percent in 2011 as the broader market plunged 20 percent, is down more than 5 percent on the week. China Unicom is trading at 24.8 times forward 12-month earnings, which is more than 41 percent above its historical median, according to Thomson Reuters StarMine.
Hutchison Whampoa Ltd, a Hong Kong ports-to-telecommunications conglomerate, was the Hang Seng's top gainer on Friday, adding 3.3 percent with volumes at almost four times its 30-day average.
One of its units, Hutchison 3G, signed an agreement to buy a 100 percent stake in Orange Austria from France Telecom and a private equity firm for 1.3 billion euros in enterprise value, a source familiar with the matter told Reuters on Friday.
CICC's Hong said some investors are expecting another cut in reserve requirements by Beijing in the next few days, ahead of a fresh batch of economic data next week for inflation and trade.
China's fledgling services sector weakened in January as property tightening measures weighed on demand, the official purchasing managers' survey showed on Friday, reinforcing the case for policy easing to bolster economic growth.
GROWTH-SENSITIVE SECTORS LEAD SHANGHAI HIGHER
Financials accounted for the top four boosts to the Shanghai Composite. The mainland's top lender, Industrial and Commercial Bank of China (ICBC) and its smaller rival, Bank of China each gained 0.7 percent.
A-share turnover in Shanghai improved for a second-straight session, but remained below its 20-day average.
Small-cap names were relative outperformers, with the CSI500 , a gauge of shares of small- and medium-sized companies, up 1.7 percent. Nari Techology Development Ltd Co gained 5 percent.
Chinese shippers extended gains on Beijing's ban of large foreign ships. China Shipping Container Lines Co Ltd gained 1.9 percent on Friday and 3.4 percent this week.
China's ban on large ships was limited to Vale SA's giant iron ore vessels, shipping sources said on Thursday, clearing up confusion in the maritime community as to whether new government regulations could cover other smaller ships.
Zijin Mining Co Ltd , the mainland's largest gold miner, rose 0.9 percent in Shanghai and 1.6 percent in Hong Kong after reporting on Friday an estimated 5.8 billion yuan ($919.58 million) profit for 2011, up 20 percent from the prior year.