The “China Factor” temporarily ruled China stocks in Hong Kong again Tuesday, and that is good. Buoyed by robust corporate earnings, appealing valuations and a solid rise on the Shanghai market, Hong Kong stocks soared.
The blue-chip Hang Seng Index rose 2.0%, and the index of Chinese companies gained 3.3% in moderate turnover.
And for once overseas considerations boosted the market as investors speculated the U.S. Federal Reserve Board would open the door to stimulative policies in its meeting on Friday.
However, KGI Asia chief operating officer Ben Kwong said, “There is still the overhang of concern about European debt and the possibility of a recession in the U.S.”
Over and over in the last month a shot of bad news on one of these fronts has sent global markets into a freefall. That includes Hong Kong, despite near rock-bottom valuations and good corporate results. That means Tuesday’s rise is probably short-lived. When overseas worries come to the fore again, Hong Kong stocks will sink.
In this environment, trading is choppy, Kwong said. High-flying sectors eventually slump and laggards regain ground. At this point the wounded high flyers include cement producers and high-end consumer goods companies, according to Kwong. Meanwhile the beaten-down Chinese financial sector is rebounding. The Agricultural Bank of China rose strongly Tuesday, as did China Life Insurance ahead of its results announcement. Petrochemicals like Petro China are also staging a comeback.
Kwong thinks a more broad and sustained rally may not take place before September. Then there will be more IPOs to spark interest and China’s inflation rate may finally show signs of a pull back. End
DAILY FIX -- Chinese Banks, Insurers Strong
Hong Kong Blue Chips: +389, +2.0%, to 19,876, 08-23-11, Hang Seng Index
Chinese Stocks in Hong Kong: +333, +3.3% to 10,579, 08-23-11, HSCE Index
Shanghai Stocks: +1.5%, 2,554, 08-23-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -0.3 to 377.7, 08-22-2011, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips opened 10 points lower, but gains in Shanghai helped them soar above the 10-day moving average. Chinese financials were strong, and China Telecom (0728) jumped 4.8% on encouraging results. KGI Research
Quotable: "Although Hong Kong’s stock market will remain volatile in near term, current valuation of the Hang Seng Index at 2011 PER of 10.4x with EPS growth of 16% is definitely attractive to long term investors." Guoco Capital. 8-22-2011
Chinese Company to Watch: "DONGFENG GROUP (00489) Auto sales maintained stable growth. Prospective P/E of 7.5x which is attractive." KGI Asia. 8-23-2011
While we expect solid profit contribution growth ahead from CITIC Pacific’s (0267) core special steel and property businesses and various peripheral units, the inauguration of its iron ore operation is expected to provide the wild card for earnings growth in the coming two to three years." Haitong Securities. 8-22-2011
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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=CNback. End
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