A-Share Swoon Stalls China Stocks

Gene Linn |

China stocks have a lot going for them, but that didn’t matter Tuesday when the Shanghai market fell to its lowest level in almost four years.

The Shanghai Composite Index plunged 1.3% to sink below the key psychological and technical level of 2,000 at 1,991. It was the lowest close since January 23, 2009. The Mainland market is plagued by uncertainty over China’s economic policies ahead of an important mid-December meeting and by a glut of new shares that is draining liquidity, said Steven Leung, director of institutional sales at UOB Kay Hian.

China stocks in Hong Kong and abroad don’t always follow the tightly restricted Mainland markets, but the A-share flop is stalling a rally in Hong Kong. The Hang Seng Index lost early gains Tuesday when Shanghai fell below 2,000, ending down 0.1% at 21,844 in light turnover. The index of Chinese companies tumbled 0.4% to 10,528.

The Hang Seng soared 3.6% last week because manufacturing statistics indicated the struggling Chinese economy had started to rebound. Hong Kong also enjoys an inflow of foreign cash due to loose monetary policies in the U.S. and Europe. In addition, optimism is rising the U.S. can avoid its looming fiscal cliff.

The Hong Kong blue-chip index may mark time at the current level, near the year-high, until the December economic policy meeting provides information on new stimulus policies, Leung told Equities.

He said he doesn’t expect any dramatic new policies, but thinks the government will boost consumer consumption to help make up for weak exports. He likes autos, like Brilliance (BCAHY), and electronics, like Skyworth Digital (SWDHY) and Lenovo (LNVGY). End

DAILY FIX

Hong Kong Blue Chips: -18, -0.1, to 21,844, 11-27-12, Hang Seng Index

Chinese Stocks in Hong Kong: -41, -0.4%, to 10,528, 11-27-12, HSCE Index

Shanghai Stocks: -26, -1.3% to 1,991, 11-27-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -2.7, 379.8, 11-26-12, Bank of New York Mellon, ADR Index-China - closed by storm

Insight: Hong Kong blue chips gained 142 in early trading on renewed optimism for a settlement of the Greek debt crisis, but fell into negative territory after the Shanghai Composite Index plunged below the key 2,000 level. However, food and beverage company Vitasoy surged 5.2% due to strong interim profits. KGI Research

Quotable: "From technical view point, HSI rebounded from 18,056 since Jun and reached the first resistance at 20,300 in Aug. The index gained 2,244 points in this “Wave I”. Then, the index pulled back from 20,300 to reach the trough at 19,076 in early Sep to form the “Wave II”. It retreated by 1,224 points which is 54.5% of the total gained in “Wave I”. According to the Elliot Wave Theory, after the market finished the correction in “Wave II”, the possible gain for the coming “Wave III” will be 1.618 times of the points gained in “Wave I”. If the aggregated gain for “Wave I” was 2,244 points, the possible gain for “Wave III” will be 3,630 points. As “Wave III” has started from 19,076, the possible peak for “Wave III” will be 22,700. This is very close to the target of 23,000 under fundamental analysis." Core Pacific Yamaichi. 11-23-12

Chinese Company to Watch: Excavating and mining machinery maker SANY INT'L (SNYYY) "1H profit rose 16%yoy to RMB484bn, down side was limited with pervious buy back between HK$3.7 and 4.3." KGI Asia. 11-27-12

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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