Buying Chinese stocks hasn’t been a popular pastime lately. The blue-chip Hang Seng Index in China Gateway in Hong Kong slumped 6.8% from April 8 to May 25. In the same period Hong Kong’s index of Chinese companies dropped 7.0 %. Trading volume overall plunged 35% from the week of April 8 to last week.
But Peter So, head of research at CCB International Securities, told Equities there are a number of Chinese sectors that will attract buying soon. “We like the coal sector,” he said. “We think the rising economy will support demand for coal. The entry point will probably be mid- to-late-June.”
Cement companies will gain from not only from the growing economy but from the government’s drive to consolidate the industry by eliminating smaller, less efficient producers, thereby reducing output. “The recent sell-off provides a good opportunity,” So said.
The price of Chinese bank stocks has also fallen recently. The current sector P/E level of about 9 is attractive, according to So. (For full disclosure CCB International is a wholly owned subsidiary of the huge China Construction Bank.) “We recommend accumulating banking stocks in late June.”
Overall, Chinese companies in Hong Kong are becoming better and better bargains, So said. Further declines in coming weeks would push market P/E down to about 10, well below the historical level of around 14. “It would be lucrative to buy and accumulate stocks for the medium and long term,” he said.
So expects more declines as the market consolidates in the next two weeks amid concern about tightening liquidity in China’s fight against inflation and about the rising U.S. dollar. But he thinks that when those concerns ease, investors will regain their appetite for Chinese stocks.
Hong Kong Blue Chips: +16, +0.07%, to 22,747, 05-25-11, Heng Seng Index
Chinese Stocks in Hong Kong: +9, +0.07% to 12,690, 05-25-11, HSCE Index
Chinese Stocks in the U.S.: +2.7 to 423.4, 05-24-11, Bank of New York Mellon, ADR Index-China
Insight: Weak Asian and Chinese markets pushed Hong Kong lower in early trading, but the blue chip index found support at the 250-day moving average. Late futures-related buying allowed major indexes to close with a small gain. International commodities giant Glencore fell 2.4% from its offer price on its first day of trading. KGI Research
Quotable: "We expect the benchmark to dip to 22,400 points, 250-day moving average. Investors should pay attention to the European debt crisis and keep away from export-related shares." CFSG. 5-24-2011
Chinese Company to Watch: China Everbright International (0257). "Renewable energy business can benefit from preferential PRC government policies, market expected that the twelve five year plan will increase investment on environmental protection business which is advantageous to the Group’s long term development.... We suggest investors to accumulate at current price, target price: HK$3.6, Stop Loss: HK$2.9. KGI Research. 5-24-2011
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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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