China A-Shares Drop Sours Hong Kong Market

Gene Linn |

Hang SengChina stocks in Hong Kong lost early gains Thursday on the heels of a steep drop in Mainland A-shares, but one analyst sees the possibility of a rebound in both markets.

The Hang Seng Index in Hong Kong opened higher after gains on Wall Street but ended down 0.8% at 19,025, barely staying above the important 19,000 level. The index of Chinese companies sank 1.3% to 9,336.

Shanghai’s Composite Index tumbled 1.0% to close below the key 2,200 level at 2,196.

However, Peter So, managing director and co-head of research at CCB International, said Wednesday’s rebound had shown some support. CCB International is the brokerage arm of the giant China Construction Bank.

“China is introducing more policies to aid the market,” So told Equities. “I think it’s a good time to accumulate stocks.”

Among the policies were recent cuts in the interest rate and in banks’ reserve requirement ratio, he said. China is also ramping up spending In infrastructure projects. So expects another cut in the interest rate and RRR in the third quarter.

“That will provide more liquidity for banks to lend to companies more readily,” he said.

So likes Mainland-linked securities firms such as Haitong Securities (6837.HK). He also favors some insurance companies such as Ping An (PNGAY) and the smaller China Taiping (CTIHY). These two firms have good growth prospects and should benefit from a rebound in the A-shares they invest in.

So cautioned that rising market strength would be only a medium-term development and “external factors” like the European debt crisis and slow U.S. economic growth could weaken stocks. End

DAILY FIX

Hong Kong Blue Chips: -152, -0.8%, to 19,025, 06-28-12, Hang Seng Index

Chinese Stocks in Hong Kong: -125, -1.3%, to 9,336, 06-28-12, HSCE Index

Shanghai Stocks: -21, -1.0% to 2,196, 06-28-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +3.8, 359.9, 06-27-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened higher in line with gains on Wall Street, but a sharp drop on Mainland markets dragged Hong Kong blue chips down. The Hang Seng Index closed just over the key 19,000 level in weak turnover. A rise in the global oil price boosted CNOOC (CEO), which rose 2%. KGI Research. 6-27-12

Quotable: "We find no positive catalyst for Hong Kong’s stock market and believe the Hang Seng Index may fall to 18,500 in near term." Guoco Capital. 6-26-12

Chinese Company to Watch: "Amid the strong growth of mature market, Lenovo (LNVGY) FY12 (Y/E 31 Mar) revenue rose 37% yoy to US$29.6bn. Net profit rose 73% yoy which is in line with expectation.We suggest investors to accumulate at current price...." 6-28-12

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

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