March 8, 2017 / 5:25 AM / a year ago

China shares flat amid liquidity concerns; Hong Kong up again

* SSEC flat, CSI300 +0.1 pct, HSI +0.5 pct

* Risk appetite curbed by liquidity concern, geopolitical tension

* ZTE jumpa in Hong Kong after settling charges brought by U.S.

SHANGHAI, March 8 (Reuters) - China stocks struggled to make headway on Wednesday morning, as small-caps corrected amid lingering concerns over tighter liquidity.

But Hong Kong shares were on track to rise for the third straight day, inspired by a second-day surge in mainland developers, as well as a jump in ZTE Corp after the Chinese telecom equipment maker settled with the U.S. government on charges in connection with exports to Iran and North Korea.

China’s upbeat monthly trade data, which came during China’s midday trading break, added some fuel to the Hong Kong market.

Both China’s blue-chip CSI300 index and the Shanghai Composite Index ended the morning session roughly flat, at 3,456.00 points and 3,243.75 points, respectively.

After an early-week rally led by technology shares, investors started to focus on longer-term factors such as liquidity situations and regional stability, while continuing to digest news flows from the annual meeting of China’s rubber-stamp legislature.

China’s leaders pledged at the meeting to contain the financial risks from a rapid build-up in debt, and the central bank has moved from a loose monetary stance to a tightening bias to discourage speculative investments.

Hedge fund manager Zhang Kaihua said a possible U.S. rate hike next week “may prod China to tighten liquidity and increase money rates.”

Indeed, China’s central bank drained a net 20 billion yuan from the interbank market via open market operations on Wednesday amid expectations of further tightening ahead, and investors gave lukewarm response to news that China’s foreign exchange reserves unexpectedly rose above $3 trillion in February.

Risk appetite has also been reduced by rising geopolitical tension as the United States started to deploy the first elements of its advanced anti-missile defence system in South Korea on Tuesday after North Korea’s test of four ballistic missiles.

Chinese Foreign Minister Wang Yi on Wednesday urged Seoul to halt the deployment, saying South Korea is making a mistake.

“The international situation is getting very complicated. As a fund manager, you need to prepare for the worst,” Zhang said.

Technology-heavy start-up board ChiNext dropped 0.4 percent, erasing some of the gains earlier this week, but infrastructure and property shares took the baton, both rising over 1 percent.


In Hong Kong, the Hang Seng index added 0.5 percent, to 23,800.00 points, while the Hong Kong China Enterprises Index gained 0.8 percent, to 10,309.05.

ZTE shares jumped 5 percent, after it agreed to pay $892 million and plead guilty to criminal charges for violating U.S. laws that restrict the sale of American-made technology to Iran and North Korea.

An index tracking Chinese property shares surged 2.6 percent, after the previous day’s 2.8 percent gain.

Reported by Samuel Shen and John Ruwitch; Editing by Richard Borsuk

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