Banks Set to Lead China Stocks Higher

Gene Linn  |

China stocks ended a volatile week higher on Friday, with banks set to lead the market to further gains.

Global stocks started the week in a swoon, after the US reported disappointing job results and the European debt crisis heightened. But strong results from US aluminum giant Alcoa (AA) kicked off a mid-week rally.

Hong Kong's Hang Seng Index ended the week 0.06% higher at 20,701, and the index of Chinese companies rose 1.8% to 10,937. Turnover was light throughout the week, but increased a bit Friday.

In China news, GDP growth posted a higher-than-expected drop to 8.1%, raising expectations that China would implement moves to stimulate growth.

Those moves, such as cutting banks' required reserve ratio, would benefit the banking sector. And that sector got more good news Friday when China announced the city of Shenzhen would launch financial reform that would attract overseas RMB holdings.

“I think the new measures will recycle offshore RMB so it will become onshore RMB, and that will help banks,” said Peter So, managing director and co-head of research at CCB International.

One major benefactor would BOC Hong Kong (BHKLY) because it handles the bulk of RMB trade in Hong Kong, So told Equities.

He expects banks to lead the Hang Seng to 21,700, possibly next week.

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