August 10, 2016 / 5:06 AM / 2 years ago

Yield-hungry investors push Hong Kong stocks to 8-month high; China shares dip

* CSI300: -0.2 pct; SSEC: -0.1 pct; HSI: +0.4 pct

* Hong Kong rally driven by liquidity, not fundamentals -trader

* Coal and steel sectors jump in China

* Property shares correct

SHANGHAI, Aug 10 (Reuters) - Hong Kong stocks climbed to a fresh eight-month high on Wednesday, as yield-hungry investors sought bargains in the backdrop of a slowing global economy and ultra-low interest rates.

But China shares slipped in morning trading, even as coal and steel sectors advanced on higher raw material prices.

Hong Kong’s benchmark Hang Seng index added 0.4 percent by lunch break, to 22,558.45 points, hitting the highest level since late November. The Hong Kong China Enterprises Index gained 0.5 percent.

“Money is flowing into Hong Kong stocks because they’re relatively cheap compared with bonds,” said Alex Wong, Hong Kong-based director at Ample Finance Group.

“But since the rally is driven by liquidity, not fundamental factors, I suspect the market will lose upward momentum before long.”

Wong noted that buying appears concentrated in some blue-chips that offer stable dividends, signalling that investors are seeking stable returns at a time when interest rates have turned negative in places such as Japan and Europe.

There are also signs that strength in Hong Kong stocks has been bolstered by money from the mainland, as more than 20 mutual funds have been launched this year to invest in Hong Kong shares. Also, inflows through the Shanghai-Hong Kong Connect scheme shows signs of accelerating.

Hong Kong shares are now 25 percent cheaper than their mainland peers, according to an index comparing the markets, and trade at half the valuation of U.S. stocks.

In China, stocks were down slightly Wednesday morning, as a sharp correction in real estate stocks offset a surge in commodity shares.

The CSI300 index fell 0.2 percent, to 3,249.05 points by lunch break, while the Shanghai Composite Index lost 0.1 percent, to 3,022.60 points.

Coal and steel stocks surged on higher prices of the materials, amid hopes that Beijing will step up efforts to reduce production capacity in the sectors in the second half.

Xishan Coal rose 3.1 percent while Yanzhou Coal jumped 4.5 percent.

Reporting by Samuel Shen and Pete Sweeney; Editing by Richard Borsuk

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