(Reuters) - Shares in Hong Kong fell 0.7 percent on Thursday, in turnover that neared 2011 lows, and the Hang Seng Index was poised to end the year down about 20 percent -- its first annual drop since 2008.
In 2010, the Hang Seng Index rose 5.3 percent.
On Thursday, Chinese shares listed in the mainland and Hong Kong found relative strength ahead of the HSBC China Purchasing Manager's Index (PMI) for December on Friday, which could offer clues on how much the world's second-largest economy is slowing down.
Beijing is scheduled to release its official PMI data on January 1. The median estimate from a Reuters poll of 14 economists on Wednesday is for an official PMI reading of 49.1, inching up from 49 in November.
On Thursday, the Hang Seng Index closed at 18,397.9 points, holding above the 18,280-18,400 zone that had served as good support for much of the past two weeks. It is down 20.1 percent this year.
The China Enterprises Index declined 0.4 percent, but was a relative outperformer, partly boosted by strength in mainland markets. For 2011, the H-share index is down 21.7 percent.
These two main Hong Kong indices are among the worst performers in Asia this year. Through Thursday, the MSCI ex-Japan Asia Pacific Index was down 15.8 percent.
The Shanghai Composite Index on Thursday finished up for a second-straight session. It gained 0.2 percent to close at 2,173.6 points, creeping out of technically oversold conditions for the first time in three sessions.
With just one trading day left, the Shanghai Composite is poised for a second straight double-digit annual loss. The index, which shed 14.3 percent in 2010, is down 22.6 percent in 2011.
China's biggest auto-maker, SAIC Motors Corp Ltd was the top boost in Shanghai, gaining 4.1 percent. Strength in industrials and energy stocks was a key boost, with Sany Heavy Industry Co Ltd up more than 1 percent.
But A-share turnover neared three-year lows, with money supply issues again seen as partly accountable as short-term money market rates in the mainland surged to a five-month high on heightened year-end demand for cash.
In a bid to boost interest in mainland markets, Beijing has since October granted nearly $1 billion in quotas for foreign institutions to invest in the country's capital markets following a five-month hiatus. This reflects Beijing's desire to encourage inbound investment amid signs of a capital outflow.
CNOOC AMONG TOP DRAGS IN HONG KONG
CNOOC Ltd, the worst performer this year among the three Chinese oil giants listed in Hong Kong, was among the top drags on the Hang Seng Index, falling 1 percent.
Currently, CNOOC is trading at 7.5 times forward 12-month earnings, a 30.2 percent discount to its historical median after slumping more than 26 percent this year according to Thomson Reuters StarMine.
CNOOC is a difficult stock. We have upgraded it from sell to underperform, but we remain cautious, CLSA's head of Asian oil and gas research, Simon Powell, told Reuters.
In a note to clients on Thursday, Powell said CNOOC is likely to see limited growth in its oil production in the new year, with ongoing issues relating to its Penglai field in Bohai Bay a big drag.
But at HK$13.58, where it closed on Thursday, Powell said investors were pricing in a very low future oil price and that the stock could look attractive for investors bullish on oil prices. He has a 12-month price target of HK$14.88.
Powell's top pick in the sector for 2012 is China Petroleum & Chemical (Sinopec) Corp, which is up 9.8 percent this year. The company's earnings composition makes it the least impacted by oil prices in a flat-to-falling market, Powell said.
PetroChina Co Ltd, which is down 4.6 percent in 2011, gained 0.4 percent on Thursday.