Europe’s struggles with its debt crisis continue to pre-occupy Chinese stocks investors, while expected credit loosening in China offers a ray of hope. However, one analyst cautions that there is uncertainty surrounding Chinese economic growth.
S & P’s warning it may downgrade the credit rating of euro zone countries helped drag Hong Kong’s Hang Seng Index down 1.2% Tuesday to 18,942. The Index of Chinese companies sank 1.5% to 10,259. Turnover, already weak in the last few days, fell even further, indicating investors are taking a wait-and-see attitude prior to a summit of European leaders later this week.
The summit will likely produce “good or neutral news” on the debt front, according to Benny Wong, head of research at BOCOM International. And the market expects China’s inflation rate to fall below 5% in November figures to be released Friday, opening the way for more credit loosening.
With the prospect of good or neutral news, Wong told Equities in an email that he expects Hong Kong stocks to hang onto big gains made in the last week. The Hang Seng will swing up or down 500 to 600 points from its current level this month, he said.
But Wong warns that a solution to Europe’s debt crisis will be elusive and says the first half of 2012 “should be tough given that it is the peak of debt maturity for Italy and France .”
And he said that prospects for Chinese economic growth are cloudy. Chinese economic figures are not reliable, Wong said, leaving investors to evaluate “real life examples” and movements of Chinese stock markets to gauge how fast China’s GDP is falling.
“Judging from A-shares market, it is worrying,” he said. Shanghai’s Composite Index has fallen to its lowest level since October 21.
In view of longer term uncertainty, Wong advises against a buy-and-hold strategy. If the market stays firm in the short term, he recommends Chinese banks, insurance companies and coal producers. End
Hong Kong Blue Chips: -237, -1.2%, to 18,942, 12-6-11, Hang Seng Index
Chinese Stocks in Hong Kong: -154, -1.5% to 10,259, 12-6-11, HSCE Index
Shanghai Stocks: -0.3%, 2,326, 12-6-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +3.5, to 384.4, 12-5-11, Bank of New York Mellon, ADR Index-China
Insight: S & P's threat to downgrade the debt of euro zone countries pushed Hong Kong stocks lower. Turnover sagged as investors waited for news from a summit of European leaders later this week. KGI Research
Quotable: "...(S)everal technical indicators showed a bullish sentiment in the market. If the market sentiment remains strong, it will not turn into a bearish sentiment without any trigger." Core Pacific Yamaichi. 12-6-11
Chinese Companies to Watch: "We recommend an overweight position on Chinese banks and property developers as well as metal, cement and automobile manufacturers from trading perspective. Our top picks are China Construction Bank (CICHY), China Overseas Land (CAOVY), Jiangxi Copper (JIXAY), Anhui Conch (AHCHY) and Dongfeng Motor (DNFGY)." Guoco Capital. 12-6-11
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