Hong Kong shares weaker, Shanghai falls below 2,200

HONG KONG: Hong Kong shares reversed early gains to finish lower at midday on Wednesday, underperforming Asian peers, with lackluster turnover suggesting investors were cautious, refraining from chasing recent gains.

Mainland Chinese markets reopened after a New Year holiday to an ambivalent start despite expectations that some favourable policy news over the long weekend could boost sentiment. Weakness in China weighed on Hong Kong, traders said.

The Shanghai Composite Index, which ranked among the worst in Asia in 2011 with a 22 percent loss, also reversed early gains to slip below long-term resistance at 2,200 to 2,194.67 by midday.

In Hong Kong, the China Enterprises Index of top mainland listings in the territory was a relative underperformer, losing 0.59 percent. The broader Hang Seng Index

was down 0.29 percent at 18,822.68 at the midday trading break.

"I think there were some who were getting ahead of themselves yesterday. There is a complete lack of momentum right now, and at current levels investors don't have much incentive to chase gains," said Alex Wong, director of asset management at Ample Finance Group.

Swire Pacific Ltd was the Hang Seng Index's top drag, slumping 15.6 percent to the lowest since September 2009 in midday volume that exceeded its 30-day average.

Traders said investors were rolling out off Swire's listing before a special ex-dividend on Thursday and making portfolio adjustments ahead of Swire's listing by introduction of a spinoff of its property business on January 18.

Swire will distribute seven shares of Swire Properties for every 10 Swire Pacific "A" shares and for every 50 "B" shares to qualifying shareholders, totalling 18 percent of Swire Properties.

The Hong Kong conglomerate had in May 2010 scrapped plans for a full initial public offering of its property arm because of deteriorating market conditions.

SHANGHAI LOWER, LIQUOR MAKERS WEAK In Shanghai, two of China's top liquor brands were among the top drags on the benchmark amid some profit-taking. Kweichow Moutai Co Ltd lost 3 percent, while Shanxi Xinghuacun Fen Wine Factory Co Ltd slipped 5 percent.

Kweichow Moutai, which produces Moutai liquor that is perceived as a status symbol but classified as a consumer staple on the Shanghai index, surged 15.6 percent in 2011, ranking it among the top performers in mainland markets.

It is also among a rare group of stocks that have seen three straight annual gains. Despite its outperformance relative to the broader market, it is still trading at a large discount to historic medians.

Over the last seven days, its forward 12-month earnings estimates have been cut by an average of 1.7 percent, according to Thomson Reuters StarMine.

It also shows that Kweichow Moutai currently trades at 18.3 times forward 12-month earnings, a 46.9 percent discount to its historic median. Its forward 12-month price-to-book valuation is a 36 percent discount to its historic median.

Stocks seen more sensitive to the economic slowdown were also weak on the first day of trade of the year. China's biggest lender, Industrial and Commercial Bank of China Ltd lost 0.5 percent.

China has uncovered 530 billion yuan ($84.21 billion) worth of irregularities with local government debt, according to a National Audit Office report published on Wednesday.