A-Share Dive Rattles China Stocks in Hong Kong and Beyond

Gene Linn  |

Mainland markets continued to swoon Wednesday, undercutting China stocks in Hong Kong and abroad.

The Shanghai Composite Index tumbled a further 0.9% to 1,974 after diving below the key 2,000 level Tuesday and closing at the lowest level in almost four years. Mainland stocks suffer from a drought in liquidity caused by a glut of new share offerings and by uncertainty over future Chinese economic policy.

A-shares sold in Shanghai and Shenzhen are highly restricted to foreign investors, but the raging bear market in China is having its effect in Hong Kong and beyond. “The weak A-share market is dragging down Hong Kong,” said Francis Lun, managing director at Lyncean Securities.

Hong Kong’s Hang Seng Index sank 0.6% to 21,709 in thin trading, and the index of Chinese companies fell 1.2% to 10,399.

The Hang Seng will continue to drop in the short term because of the weakness in Mainland markets, Lun told Equities. He sees support at 21,000 with Chinese banks and insurers leading the decline.

Lun said that while A-shares are headed south, the Chinese economy and manufacturing seem to be rising after a long drop in growth. The upturn could open investment opportunities in Chinese power generating companies Harbin Power (HRBN) and Dongfang Electric (1072, HK), he said. End


Hong Kong Blue Chips: -135, -0.6, to 21,709, 11-28-12, Hang Seng Index

Chinese Stocks in Hong Kong: -129, -1.2%, to 10,399, 11-28-12, HSCE Index

Shanghai Stocks: -18, -0.9% to 1,974, 11-28-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -4.3, 375.4, 11-27-12, Bank of New York Mellon, ADR Index-China - closed by storm

Insight: Weakness in Mainland markets continued to drag Hong Kong down with the Shanghai Composite Index falling further below the important 2,000 level. Chinese banks fell: CCB (CICHY) dropped nearly 2%. KGI Research

Quotable: "We maintain our bullish view on H shares as the HSCEI is currently trading at undemanding 2012 PER of 8.7x." Guoco Capital. 11-28-12

Chinese Company to Watch: "Pacific Textiles (1382, HK)’s latest interim earnings proves its strength in sluggish market. BUY on dip." Guoco Capital. 11-28-12

Brokerages and analysts cited here have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don’t endorse them.

For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

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