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
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
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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=CN