Asian markets were divided on Wednesday, with Hong Kong and China firmly in green territory for the second day running after the Hang Seng's one-session 5% meltdown.
The Hang Seng gained 270 points, or 0.92%, to 29,708, after trading up over 30,000 for some of the day, while the Shanghai Composite Index rose 65 points, or 1.18%, to 5,601.
"If you look at the prospects of Chinese liquidity coming in
to Hong Kong I think it's huge right now," says Joanne Goh, a regional equity strategist for DBS in Singapore. "It was affected on Monday when the Chinese premier put a stop to it by holding retail investors back, but domestic corporations is where the big money investing out of the country is. This is definitely very real."
Momentum blue-chips were some of the biggest winners. In real estate,
Cheung Kong Holdings
jumped 1.89% to HK$145.50, while
Sun Hung Kai Properties
soared 6.6% to HK$12.64.
But lending data in Hong Kong suggests that trouble may be ahead in the short term for the island's real estate stocks. In September, loans to homebuilders fell 2.4% vs. an expected increase of 0.1%, reversing August's 1.4% increase. The value of lending to investors fell in September by 3.3%.
Among telecom names,
jumped 1% to HK$143.30,
leaped 4.05% to HK$16.44, and
surged 6.35%, to HK$22.60.
The two big IPO's of the week, however,
, slid on profit-taking after posting huge gains on their listing debuts. PetroChina lost 1.26% to HK$17.28, while Alibaba.com plunged 17.47% to HK$32.60.
Most money managers recommend holding off trading in these stocks until next week, when prices are expected to normalize.
Oil companies in China continued to post solid gains, as crude pushed an all-time high above $98 in Asian trading.
Sinopec Shanghai Petrochemical
inched up 0.4% to 17.99 yuan, while
China Petroleum & Chemical
bounced 2.24%, to 24.21 yuan, off its recent two-week low.
In Korea, the Kospi traded strongly throughout the day but fell back at the close, losing 11 points, or 0.54%, to 2,043.
Japanese markets were lower on a sharply higher yen, with the Nikkei off 153 points, or 0.94%, to 16,096, and the Topix shedding 17.9 points, or 1.1%, to 1,556.
Currencies were a large part of the discussion on Wednesday, with the yen hitting a high of 113.95 vs. dollar.
The yuan was markedly higher vs. the dollar, trading at an all-time high in Asian trading, after Cheng Siwei, vice chairman of China's National People's Congress, told investors and policymakers that China would begin to "favor" stronger currencies like the euro over the dollar for investment. The yuan was trading at 7.442 against the greenback, compared with 7.4552 Tuesday.
China has been under increasing pressure to let the yuan appreciate, a move that would harm exporters.
Guo Jianwei, director of interest rates at People's Bank of China, proposed setting a fixed interest rate policy with a specific range for the next two to five years to stem the yuan's appreciation and stabilize inflation.
"His suggestion looks similar to the exchange rate mechanism introduced with the European Monetary System in 1972," says Adrian Foster, head of capital markets for Dresdner Kleinwort in Beijing. "In my opinion this is already the goal of China's leadership. The issue is what level is the appropriate
yuan level and how quickly does it get there?"
Foster sees the yuan trading at 7 yuan vs. the dollar next year, which he describes as "sustainable."
"At this stage
7 yuan vs. dollar, dollar-yuan ceases its trending and the yuan is driven by moves in major currencies through the trade-weighted index mechanism that China is tentatively introducing."
Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at
. He lives in New York.