China shares at 8-1/2-mth low, HK falls through chart supports

HONG KONG: Hong Kong shares fell through two key chart support levels this week while Shanghai's key stock index slid to its lowest level in over eight months as growing bearishness on Chinese equities and Greece's worsening debt crisis drove investors out of riskier assets.

Those betting on declines in Chinese shares have come out on top over the past month as markets have overlooked cheap valuations and a generally positive outlook for China's economy.

The Hang Seng index fell 1.2 percent on Friday, June 17 to 21,695 points, bringing its losses so far this month to over 8 percent and marking its worst two-week decline since last November.

In China, the Shanghai Composite fell 0.8 percent, bringing its losses for June to 3.7 percent.

"Quite a few short-term guys have been hurt trying to catch a falling knife, to be honest," said Tom Kaan, a director at Louis Capital Markets in Hong Kong.

"I still think real money is sitting on the sidelines because you don't want to be seen buying in such a market," he said.

"Greece is the big story but even if it's not Greece, its the U.S. debt ceiling. If not that, then China accounting worries."

Foreign investors have grown increasingly wary of Chinese stocks amid talk in the West of a Chinese internet bubble and questions about China Inc's corporate governance following controversies surrounding Sino-Forest and Harbin Electric .

China's dominant internet firm Tencent Holdings Ltd , which had been relatively outperforming the Hang Seng Index this year, fell 4.2 percent. Its shares are down 15 percent this month.

Fears of an abrupt slowdown in China's economy have added to the pessimism. However, while recent data have pointed to slight cooling in economic growth, echoing global trends, few market watchers expect a hard landing.

Bargain-hunting in certain Chinese banking shares, trading at forward valuations close to record lows, helped limit the losses earlier in the day but gains petered out into the close.

China CONSTRUCTION [] Bank closed up 0.5 percent while ICBC finished 0.4 percent.



SHANGHAI SKITTISH, MORE TIGHTENING FEARED

China shares reversed early gains to sink to their lowest levels since last September in thin volume as short-term funding costs in the country hit the highest in six months, further restricting market players in an uncertain market.

While traders said the liquidity situation was easing, rumours of further policy tightening this weekend nudged the key seven-day repo rate to its highest level since late January.

"There a few factors at play today," said Wang Aochao, an analyst with UOB Kay Hian in Shanghai.

"Beyond concerns about monetary tightening, local funds could be beginning to be a little concerned how the protracted Greek debt situation could impact China's monetary policy."

The benchmark Shanghai Composite Index lost 2.3 percent on the week to end at 2,642.8 points, its lowest point this year to date.

But analysts said the market could be bottoming out soon since losses on Friday came in thin volume. A-share turnover in Shanghai on Friday marginally decreased from Thursday, hitting 74.1 billion yuan, the third-lowest in the last five months.

Material and resource plays were the biggest drags on the benchmark on profit-taking. Aluminium Corp of China Ltd

Both stocks have outperformed the broader market in June so far. Even after Friday's losses, they have gained 8.9 and 14.9 percent, respectively, this month.