ASIA MARKETS: Valuation Worries Hit Shanghai, Hong Kong

By Chris Oliver

Asian shares ended mostly lower Monday, as investors became wary of valuations after two months of gains and of the possibility that foreign stakeholders could sell shares in some big banks as lock-up agreements expire.

Tokyo's main index ended marginally higher, as gains in financial shares helped offset a weaker performance by Toyota Motor Corp (TM).

"The market is grossly overbought," said Andrew To, head of research at Tai Fook Securities in Hong Kong, referring to the Hang Sang Index. He noted shares had advanced in seven consecutive sessions. "I think the market is not supported by fundamentals, but rather supported by fund flows and a squeeze on short positions."

Japan's Nikkei 225 ended 0.2% higher, South Korea's Kospi Composite added 0.2% and Taiwan's Weighted Price Index gained 1%. Shanghai's Composite fell 1.8%, Australia's S&P/ASX 200 slipped 0.4%, Hong Kong's Hang Sang fell 1.7% and New Zealand's NZX-50 shed 1.5%. Singapore's Straits Timex Index retreated 3.2%.

India's Sensex was off 1.6% in late trade, and Indonesia's JSX Composite was off 1.7%.

Shares of China Construction Bank tumbled 6.7% on news that Bank of America is looking to sell a further stake in the mainland bank, adding to recent disposals after a lock-up on its stake expired earlier this month.

The Hang Sang China Enterprises Index, a gauge of China companies traded in Hong Kong, ended 2.9% lower.

In the morning, Asian share markets were generally higher as investors took an optimistic view that the worst of the economic crisis is past, with Friday's U.S. April nonfarm-payrolls data showing a smaller-than-expected loss of 539,000 jobs.

But interest in pocketing recent gains intensified, with U.S. stock futures down nearly 1% in screen trade. "The best investment advice is to sell on strength," said analysts at MIMB in Malaysia.

"Unless there is a significant improvement in the economy soon to convince investors to shift funds out of other asset classes, this rally should peter out soon," said Daiwa strategist Tham Mun Hon in Singapore.

Japanese financial stocks took their cues from their U.S. counterparts' performance Friday. Mizuho Financial Group closed 5.7% higher, Nomura Holdings was up 2.6% and Mitsubishi UFJ Financial (MTU)closed up 2.9%, though investors were awaiting earnings reports from key stocks in the sector this week.

Toyota Motor Corp. fell 4.8% in Tokyo. Friday, it posted a $7.74 billion net loss for the fiscal fourth-quarter, leading the world's largest automaker to its first annual loss in 59 years and setting the stage for a bigger loss this year.

Resource stocks fell in Australia, with BHP Billiton (BHP) down 0.1% and Newcrest Mining Ltd. easing 2%.

"Our market seems a bit cynical toward the rise on Wall Street," said RBS head of Sydney sales trading, Justin Gallagher.

Shares in Hong Kong Exchanges & Clearing were up more than 4% before reversing direction to end 1.8% lower. Included in the latest supplement to the Closer Economic Partnership Arrangement between Hong Kong and China was a proposal for mainlanders to be allowed to buy index-tracking exchange-traded funds, or ETFs, backed by portfolios of Hong Kong-listed stocks.

HSBC ended 0.3% higher, after rising more than 3% in the morning session, on the view that financials would be generally helped by CEPA amendments which could speed up the ability of Hong Kong banks to set up more deposit-taking branches on the mainland.

In currency trading, the Japanese yen gained back some ground after recent declines. The dollar was at 97.61 yen, from 98.52 in late New York trade Friday.

But, in a sign that some risk appetite persists, the New Zealand dollar briefly touched its highest level against the U.S. dollar since Dec. 18, at US$0.6065.

Spot gold was down $2.80 at $913.40 per troy ounce, giving back gains earlier in the session, as motivation to buy the metal as a traditional hedge against inflation is limited.

Kitco analyst Jon Nadler said the inflation risk was "practically nil at the moment. One does not come out of a deflation of this size by immediately flipping over into a highly inflationary environment. Here, and now, at best, we might have an absence of deflation."

China's consumer-price index fell 1.5% in April, widening from a 1.2% dip in March, and marking the third-straight month of declines, data showed Monday.