* CSI300 +1.3 pct, SSEC +0.7 pct
* HSI -1.9 pct, HSCE -1.4 pct
* China announced deposit insurance plan Sunday
* China HSBC flash PMI flat in November
* Mainland rally on liquidity, Hong Kong corrects on fundamentals - analysts
By Pete Sweeney
SHANGHAI, Dec 1 (Reuters) - China and Hong Kong stocks had mixed morning sessions on Monday as investors took divergent views on the implications of a deposit insurance draft plan, with bank shares in Shanghai rising even as Hong Kong traders continued to sell them off.
The mainland market’s rally petered out after the release of a manufacturing surveys showing growth in Chinese factories stalled in November.
Earlier, mainland markets had risen as investors saw hope for more liquidity injections going forward, even as Hong Kong looked set to post its largest decline since October as punters there look skeptically at fundamentals.
China issued draft regulations on Sunday to introduce a bank deposit insurance system for the first time, the latest in a series of steps to fully liberalise interest rates and allow banks to compete on a wholly commercial basis.
The CSI300 index rose 1.3 percent, to 2,845.47 points at the end of the morning session, while the Shanghai Composite Index gained 0.7 percent, to 2,702.39 points.
The Hang Seng index dropped 1.8 percent, to 23,559.56 points; the Hong Kong China Enterprises Index lost 1.4 percent, to 10,989.22.
The index measuring price differences between dual-listed companies in Shanghai and Hong Kong (which is dominated by mainland banks) stood at 109.41, its highest level since mid-2013 as the two markets continued to diverge on pricing.
A value above 100 indicates Shanghai shares are pricing at a premium to shares in the same company trading in Hong Kong, and vice versa. For example, as of 11:07 a.m. the price of Bank of China’s Shanghai listed shares stood at 3.36 yuan, compared with its Hong Kong share price at HK$3.97, equivalent to 3.1472 yuan, an implied discount of 6.3 percent.
The imbalance partly reflects unbalanced capital flows through the Hong Hong-Shanghai mutual market access programme launched in mid-November.
Foreign investment flowing into Shanghai A-shares from Hong Kong through the mutual market access pilot programme took up 1.17 billion yuan of the 13 billion yuan daily quota, but Chinese investment flowing from Shanghai into Hong Kong took up only 0.16 billion yuan of the 10.5 billion yuan daily quota.
Analysts said that the difference in pricing reflected different priorities.
Mainland investors have been steadily pushing up domestic indexes as the central government has signalled a softening stance on liquidity and interest rates, seen as both good for propping up economic growth and at the same time reducing the risk for domestic banks of getting stuck with more non-performing loans.
Whereas weak manufacturing surveys dampened market sentiment, they reinforced expectations that authorities will roll out more aggressive stimulus measures after unexpectedly cutting guidance lending rates earlier in the month to shore up growth.
The final HSBC/Markit China Manufacturing Purchasing Managers’ Index (PMI) edged down to 50 in November, a six-month low and right on the boom-bust 50-point level that separates growth from contraction on a monthly basis.
The official Purchasing Managers’ Index (PMI) eased to an eight-month low of 50.3 last month, the National Bureau of Statistics said on Monday, still indicating a modest expansion in activity but below forecasts for 50.6 and October’s 50.8.
Hong Kong investors are worried about the weak fundamentals that prompted the easing measures in the first place, and consider the deposit insurance programme negative for banks as it will require them to contribute a portion of their capital into a pool for use in payouts. (Additional reporting by the Shanghai Newsroom; Editing by Simon Cameron-Moore)