HK shares drop as China hits multimonth highs

Investors rotated into Chinese banking stocks, giving further chase to the rally in the sector at the start of the last full week of trading before the Lunar New Year holiday.

The Hang Seng Index closed down 0.2 percent at 23,685 points after failing at chart resistance at 23,900 for the second time in four days. The China Enterprises Index of the top Chinese listings in Hong Kong fell 0.5 percent.

In the mainland, however, the CSI300 of the top Shanghai and Shenzhen A-share listings ended up 0.2 percent at 2,748 points, its highest close since November 2011. The Shanghai Composite Index gained 0.4 percent.

Gains in Shanghai came in the highest volume since March 2012. Both onshore Chinese indexes have bounced 30 and 24 percent, respectively, from a Dec. 3 low.

“Most investors still remain very invested in the market, torn between wanting to take some profit because they sense a short-term correction coming up and not wanting to miss the next leg up,” said Jackson Wong, Tanrich Securities' vice president for equity sales.

Wong added that infrastructure-related stocks that have recently corrected could see the next leg of rotational buying, with the market's focus after the Lunar New Year holiday likely turning towards China's annual parliamentary meeting starting in early March.

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