The steep rise in U.S. markets Tuesday was more of a groundswell when it reached China stocks in Hong Kong Wednesday. Wall Street rallied strongly partly on optimism the debt ceiling crisis would be resolved. But Hong Kong ended with moderate gains in thin, volatile trading.
“Hong Kong followed the overseas rebound, but overall sentiment is very weak,” said Eric Yuen, head of research at Guoco Capital. “The main problem is fund-raising pressure on Chinese banks.”
He noted that China Merchants Bank (CMB) had announced a 35-billion RMB rights issue and said, “There is concern other banks will do the same thing.” Chinese banks are major players in both the blue-chip Hang Seng Index and the index of Chinese companies. And fund-raising pressure isn’t the only problem they face.
A number of strategic investors may need to unload large amounts of stock in Chinese banks in July and August before deadlines on such sales. Singapore state investment arm Temasek roiled Hong Kong markets on July 5 by selling US$3.7-billion worth of stock in CCB and Bank of China.
Because of the problems Chinese banks face, Yuen told Equities: “There will not be a strong rally in the short term.”
Ironically though, according to Yuen, Mainland lenders may limit any market downside by reporting strong profit growth in coming weeks. He expects the Hang Seng to fluctuate between 21,500 and 23,000. End
DAILY FIX -- China Mobile Gains
Hong Kong Blue Chips: +101, +0.5%, to 22,004, 07-20-11, Hang Seng Index
Chinese Stocks in Hong Kong: +86 +0.7 to 12,383, 07-20-11, HSCE Index
Shanghai Stocks: -0.1%, 2,794, 07-20-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +8.9 to 439.3, 07-19-11, Bank of New York Mellon, ADR Index-China
Insight: Concern over European debt and fund raising by Chinese banks limited gains in Hong Kong following Wall Street's big rise. China Mobile (0941) jumped 3.0% after announcing an increase in subscribers. CNOOC (0883) slumped 3.2% when it fell short of the full year's oil production target. KGI Research
Quotable: "HSI will likely perform better today but remain volatile in the coming week." BOCOM International. 7-19-2011
Chinese Company to Watch: Casual wear retailer Giordano (709). "Release of strong interim results may trigger a re-rating of Giordano.... Considering strong sales growth momentum in the first quarter, we forecast full year sales to grow 20%.” Guoco Capital. 7-19-2011
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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
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