Hong Kong shares ended lower on Friday and suffered its fourth successive week of decline, as disappointing manufacturing data from China kept most cyclical sectors such as materials and mining companies weak.
Two surveys that pointed to sluggish Chinese factory activity in May signalled a deeper-than-forecast deterioration in demand at home and abroad, but also increased the likelihood of further policy easing.
The Hang Seng Index lost 0.4 percent on the day, extending last month's weakness which saw the benchmark's losses of 12 percent in May nearly wipe out its gains for the year. Near-term support for the index lies 1.3 percent below current levels around 18,300, which was the January intra-day low.
On the mainland, the Shanghai Composite Index and the large-cap focused CSI300 ended flat on the day.
“The big hangover from Europe remains and everyone's looking for safe havens,” said Tom Kaan, a director at Louis Capital Markets in Hong Kong.
“The problem is where is the safe haven and that has kept large long-only investors on the sidelines because this isn't the environment in which to double-down. Activity is largely down to those who can make the two-way bets.”
Short-selling in Hong Kong has remained relatively high through the market's weakness, with short interest expressed as a percentage of turnover averaging about 10 percent in May and rising above 14 percent on two days in the past two weeks, data from the exchange showed.
Historically, short-selling on average has comprised about 8 percent of daily turnover in Hong Kong.
Shares of China Construction Bank ended up 0.7 percent leading slim gains across bank shares as some investors covered bearish bets ahead of US payrolls data due later in the day, traders said.
Consumer company Want Want China, which has seen daily short-selling in its shares average over 27 percent of turnover, rose 3 percent.
CYCLICALS UNDER PRESSURE
Those gains were not enough, however, to offset losses in shares of companies closely linked to Chinese economic growth.
Aluminum Corp of China Ltd fell 4.8 percent after JPMorgan downgraded the stock to “underweight” from “hold” and forecast a loss for the company from an earlier profit projection.
Chalco has lost 28.1 percent from its February 2012 high as weak demand, a supply glut and a drop in alumina prices due to a slowing economy have kept investors at bay.
A drop in crude oil prices, partly due to weakening demand in China, had helped lift refiners earlier in the day but the weakness in cyclicals dragged shares back into the red.
China Petroleum and Chemical Corp (Sinopec), Asia's largest refiner, fell 0.7 percent while PetroChina Co Ltd was down 0.4 percent.
CNOOC Ltd, a pure exploration and production company, fell 2.1 percent, and was the weakest among China's three oil majors.
The drop in exchange turnover and a temporary lull in the initial public offering market has hit shares of Hong Kong Exchanges & Clearing Ltd, the world's second-largest exchange operator by market value.
HKEx remains the most profitable, sporting an 87.8 percent operating profit margin according to Thomson Reuters data, but has seen key growth drivers - new listings and trading volumes - start to wane.
HKEx fell 2.7 percent to the lowest in nearly eight months.
Worldwide, money raised from stock market flotations has slumped 46 percent so far this year compared with the same period of 2011, with investors wary of the euro zone crisis, China's economic slowdown and last month's botched Facebook IPO. - Reuters