Hong Kong shares edged higher on Tuesday, as a late short covering rally helped snap a two-day losing streak, but strong gains in utilities names and low turnover suggest that investors remain skeptical the bounce can be sustained.
The Hang Seng Index, however, has still given up about half of its gains from the closing lows on Aug. 9 as concerns over Europe and the United States lingered.
Investors are cautious, not panicky, said Edward Huang, a strategist with Haitong International in Hong Kong. There's nothing fundamental about the moves today, or the gains in the last few weeks. This is great for short-term players.
The Hang Seng Index edged up 0.5 percent to close at 19,710.5 points, boosted by gains in utilities names such as Power Assets Holdings Ltd., CLP Holdings Ltd. and Hong Kong and China Gas Co Ltd.
The index is down nearly 14 percent from its July 8 highs, weighed by concerns in Europe and the U.S.
Gold-relates stocks rose for a second day on higher gold prices. Gold miners, Zijin Mining Group Co Ltd jumped 2.7 percent while Zhongjin Gold gained 0.9 percent and Shandong Gold was up 1 percent.
CLP gained 2.9 percent to HK$71.95, lifting the stock back towards its all-time closing high at HK$72.75, which it had hit last Thursday before sliding on Friday and Monday.
A derivatives trader at a European bank in Hong Kong said a bout of buying in Hang Seng index futures just as European stocks turned positive sparked short-covering in Chinese banks and other stocks such as Li & Fung that had seen heavy short-selling in the previous session.
Limiting gains was HSBC Holdings Plc , the single largest Hang Seng component with a 14.2 percent weighting, as it finished down 1.8 percent on concern that Europe's sovereign debt situation could spiral into another banking crisis.
Tuesday's losses sank to Europe's largest bank to its lowest since July 2009, breaking below HK$65 -- a level that has served as support for much of the last fortnight and is now seen as near-term resistance.
SHANGHAI SLIPS FURTHER INTO OVERSOLD LEVELS
The Shanghai Composite Index finished lower for the fourth straight session on Tuesday, losing 0.3 percent to 2,470.5 points, sinking the index further into oversold levels on the charts as A-share turnover hit a fresh 14-month low.
Growth-sensitive sectors, such as materials, were hit harder than the rest. The Shanghai materials sub-index was down 0.6 percent. Anhui Conch Cement Co Ltd was hammered 5.2 percent.
In a report on Tuesday, Credit Suisse analysts said the supply-demand outlook of the Chinese cement sector has incrementally deteriorated, driven by softening in demand. They expect downside risk to margins in the coming months.
A foreign exchange official said China's economic growth may ease to below 9 percent in 2012 , which while backing expectations for a slowdown in monetary tightening, also sparks concern of slowing growth.
Shanghai Securities, in a strategy note to clients on Sept. 1, recommended avoiding equity investments and holding onto cash and bonds, suggesting that clients stay off consumption and high growth stocks which they expect to be more susceptible to downside pressures in a weak market.