Bad News from Europe Drives China Stocks Lower

Gene Linn |

Bad news from far and near as well as market technical factors triggered a broad sell-off of China stocks Tuesday.

Hong Kong’s Hang Seng Index had soared 16% since October 4 through Monday mainly on optimism Europe would reach a solution of its debt crisis. But as KGI Research noted, turnover shrank in the last few days of the rally, indicating momentum faltered as the Index approached the 19,000 resistance level.

Then the German Finance Minister warned there would be no comprehensive solution to the debt crisis at the upcoming EU summit on October 23 and Hong Kong and other global markets went into full retreat.

And on Tuesday China announced that its third quarter GDP growth sank to 9.1%, slightly lower than market expectations of 9.2%. This added to worries about slowing global economic growth.

The result of all these blows was a 4.2% plunge in the Hang Seng Index on Tuesday to 18,076. The index of Chinese companies plummeted 5.2% to 9,340. Turnover remained weak.

Investment Opportunities Emerge

But the big downturn could open the door for investors to pick up attractively valued China stocks again.

“I would suggest investors … accumulate the China stocks when they hit the bottom of the current rebound uptrend (i.e. 10 day MA) (about 17,600),” Jackson Wong, vice president for sales at Tanrich Securities, told Equities in an email.

The usual vehicles for short-term traders are Macau gambling plays ( appropriately), high-end retailers and Chinese building materials stocks, Wong said. Chinese banks and insurance companies now offer attractive valuations.

“Some of the industrials who posted good earnings in previous quarters should also be on the watch list for longer term holding in case the euro crisis is actually resolved…,” Wong added. End

DAILY FIX -- Faltering Optimism on Euro Debt Hits China Stocks

Hong Kong Blue Chips: -798, -4.2%, to 18,076, 10-18-11, Hang Seng Index

Chinese Stocks in Hong Kong: -513, -5.2% to 9,340, 10-18-11, HSCE Index

Shanghai Stocks: -2.3%, 2,383, 10-18-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -7.6, to 368.1, 10-17-11, Bank of New York Mellon, ADR Index-China

Insight: Remarks by the German finance minister hurt investors' confidence Europe would soon solve its debt crisis, triggering a sell-off in Hong Kong and other global markets. Slightly lower than expected Chinese GDP results for the third quarter added to pressure on stocks. However, low turnover reflected investor caution. Property developer New World China (NWRDF) plunged 25% after announcing a rights issue. KGI Research

Quotable: "Given a gloomy outlook for the global economy, we recommend short-term investors to take profit if the benchmark index exceeds 19,000 this week." Guoco Capital. 10-17-11

Chinese Company to Watch: China Water (CWAFF) "Coupled with the new water conservation technology policy outline issued by the National Development and Reform Commission a few days ago, which aim(s) to publicize the water cost and implement new pricing policies, the development outlook for the water industry is bright." CSFG. 10-17-11

Brokerages and analysts cited 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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
CIA:CA Champion Iron Limited Ordinary Shares 0.45 0.01 2.27 217,020

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