Battered Chinese Stocks Look to Friday's GDP Release

Gene Linn |

China economy Hong KongBattered Chinese stocks took a breather Tuesday ahead of Friday’s announcement of China’s second quarter GDP figure.

After substantial losses the last few trading days, Hong Kong’s Hang Seng Index slipped 0.2% to 19,396 as recent lows turnover sank even further. The index of Chinese companies fell 0.6% to 9,387.

China’s drop in inflation on Monday, which would have been welcomed earlier in the year, helped trigger a big decline because it was taken as another sign of slowing economic growth. Recent cuts in interest rates had the same effect.

“The focus now should be on Friday’s GDP figure,” said Steven Leung, director of sales at UOB Kay Hian Holdings. “I think it will be even at about 7.5%. If it is about that the effect will be neutral, but if it slips to about 7.0% there could be more panic selling.”

Producers of commodities like oil, copper and steel would bear the brunt of a selloff because a slowing economy would signal lower demand, he told Equities. Banks, a proxy for the economy, would also suffer.

But Leung said that interest rate cuts and other credit loosening measures taken in the last few months would bolster the economy later in the third quarter. Consumer plays would rise, he said, partly because low inflation would give the government room to stimulate domestic consumption.

He likes department stores like Golden Eagle (GDNEY) which have been underperforming and feature attractive valuations. End

DAILY FIX

Hong Kong Blue Chips: -32, -0.2%, to 19,396, 07-10-12, Hang Seng Index

Chinese Stocks in Hong Kong: -61, -0.6%, to 9,387, 07-10-12, HSCE Index

Shanghai Stocks: -6, -0.3% to 2,165, 07-10-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -4.4, 363.1, 07-09-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips edged lower in thin, directionless trading ahead of the release of China's second quarter GDP number on Friday. KGI Research

Quotable: "Don't hold (your) breath for a rebound -- reiterate our call on defensive stocks." BOCOM International, 7-10-12

Chinese Company to Watch: Guangshen Rail (GSH) "With steady income from Railway operation, current price is trading at perspective P/E of only 8.0 times with over 5% dividend yield; the counter is a defensive play." KGI Asia. 7-10-12

Brokerages and analysts cited here 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
NMI.DB:CA Newmarket Gold Inc. n/a n/a n/a 0

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