Caution accompanies Hong Kong's fast start

Hong Kong shares closed near a 19-month high for a third session yesterday, helped by strength in the financial sector.

Despite gains in the index, lower volumes in Hong Kong indicate caution as benchmark indexes run into chart resistance after a fast start to the year and amid a growing number of profit warnings ahead of the corporate earnings season.

The Hang Seng index closed up 0.3 per cent at 23,659.0 yesterday, with chart resistance about 23,708, its high on May 31, 2011. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.6 per cent.

"Earnings are clearly a risk, but I won't get too worried right now. I would take some profit and rotate my money into names that are laggards and have less chance of earnings disappointment," said Hong Hao, Bank of Communication International's chief strategist.

The Asian insurance giant AIA Group was the second-largest boost to the Hang Seng index, rebounding 1.5 per cent from Monday's one-month low.

AIA is still experiencing earnings forecast upgrades, with two of 20 analysts raising their earnings per share expectations by an average of 4.8 per cent in the past 30 days, according to Thomson Reuters StarMine.

By contrast, 10 smaller companies issued profit warnings on Monday night.

Vanke Properties Overseas slumped 7.5 per cent after warning it expects a "significant decrease" in full-year net profit, mainly because of the purchase in May of a Hong Kong-based property company by its parent China Vanke.

Among companies that have posted earnings, shares of Great Wall Motor jumped 1.3 per cent in Hong Kong after testing an all-time high in early trade. The stock was up as much as 6.7 per cent in Shanghai at mid-morning but closed down 0.3 per cent.

* Reuters