Banks, Mobile Phone Companies Set to Lead China Stocks

Gene Linn |

China Currency RMBBanks and mobile phone operators will lead a short-term rally in China stocks, according to Castor Pang, head of research at Core Pacific Yamaichi. Stabilized U.S. and European markets and a temporary easing of concern over European debt give Hong Kong’s Hang Seng Index (^HSI) room to rise from around 19,000 to 19,800 and perhaps as much as 20,500.

Stocks couldn’t decide what they wanted to do Wednesday. The Hang Seng opened higher after gains in the U.S. and Europe, lost almost 400 points and closed with a minimal gain. The volatility and increased turnover reflects a tug of war between bears and bulls, according to a daily Internet comment from Ben Kwong, chief operating officer at KGI Asia.

If Pang is right, the bulls will win this battle and Chinese banks will be among the winners. “Banks faced heavy selling pressure last week and they are absolutely undervalued,” he said.

Pang likes Industrial and Commercial Bank of China Limited (IDCBY.PK) (1398) because there is little chance it will dilute the value of current shares with a rights issue or share placement. Its valuation also looks good and profits are strong.

The mobile phone sector also is undervalued, according to Pang, and attractive dividends help make it a good defensive play. The expected launch of IPhone 5 in China in October will add interest to the whole sector, he said.

Although it looks like China Unicom will distribute the IPhone, Pang likes China Mobile (CHL) (0941.HK) because of its particularly low valuation and increase in subscribers. The stock gained 2.6% in Hong Kong Wednesday. End

DAILY FIX -- Little Changed in Volatile Trading

Hong Kong Blue Chips: +15, +0.1%, to 19,045, 09-14-11, Hang Seng Index (^HSI)

Chinese Stocks in Hong Kong: +1, +0.01% to 9,969, 09-14-11, HSCE Index (^HSCE)

Shanghai Stocks: +0.6%, 2,485, 09-14-11, Shanghai Composite Index. (000001.SS)

Chinese Stocks in the U.S.: +1.4 to 384.8. 09-13-2011, Bank of New York Mellon, ADR Index-China

Insight: Gains in the U.S. and Europe helped Hong Kong open higher, but weak Asian markets pulled Hong Kong blue chips down nearly 400 points around noon. Stocks rebounded to close with a small gain. Investors sold Chinese properties due to worries about declining sales. China Overseas  (CAOVY.PK) (0688.HK)  fell 3.6%. KGI Research

Quotable: "... Overall CPI will remain high as food prices are unlikely to plunge. We raised our 3Q11F CPI forecast from 5.4% YoY to 6.1% YoY and our 2011F CPI forecast, from 4.9% YoY to 5.2% YoY. We look for the government to pursue prudent monetary policy without resorting to further ate or RRR hikes." CCB International. 9-9-2011

Chinese Company to Watch: We expect the defensive sectors, telecom, consumer, and the Hong Kong’s property investment sector, as well as high dividend yield stocks to outperform in the coming month.... ICBC (IDCBY.PK) (1398.HK) outperform, Belle International (BELLY.PK) (1880.HK) outperform and Zhengtong Auto (1728.HK) outperform." CCB International. 9-9-2011.

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

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