China Inflation Figures Likely to Add to Selling Pressure

Gene Linn |

hong kong china stocksKey Chinese inflation figures will be released Tuesday, probably adding to heavy selling pressure on China stocks.

Analysts widely expect new statistics will show China’s inflation in May rose to about 5.5% from 5.3% in April. That means Chinese efforts to reign in inflation have failed in the short term, Castor Pang, head of research at Core Pacific Yamaichi, told Equities. The People’s Bank of China (PBOC) will need to raise interest rates and bank reserve rates again this month.

“That will be of major importance for stocks in China and Hong Kong,” Pang said.

Hong Kong’s blue-chip Hang Seng Index fell to a three-month low of 22,420 last week on signs of global economic weakening and worry about Chinese inflation. Pang expects blue chips will sink to about 21,600 this month

“Foreign fund flows will be a major reason especially after the PBOC hikes interest rates and the RRR (reserve rates), Pang said. “Foreign investors are reducing risk, so we see some institutions increasing selling, especially hedge funds,” Pang said.

Another sign of a bearish trend was heavy short-selling last week, he said. Four of five days last week short selling accounted for more than 10% of turnover in Hong Kong.

Some of the short selling came from institutional investors, according to Pang, while some investors adjusted their portfolios by shifting to safer utility firms from banks.  End

DAILY FIX --  Rebound from Year-low

Hong Kong Blue Chips: +88, +0.4%, to 22,508, 06-13-11, Hang Seng Index

Chinese Stocks in Hong Kong: +52, +0.4% to 12,433, 06-13-11, HSCE Index

Shanghai Stocks: -0.2%, 2,700, 06-13-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -9.5 to 417.0, 06-10-11, Bank of New York Mellon, ADR Index-China

Insight: After weakness in the U.S., Hong Kong opened lower but found strong support at the year-low of 21,123 and rebounded. Chinese banks also rebounded: CCB (0939) +1.6%. KGI Research

Quotable: "(Uncertain) inflationary pressure on the Mainland, with CPI seen rising 5.5%-5.6% in May after a 5.3% surge inApr, would continue to dampen market sentiment.... For the coming week, the HSI is expected to trade below the 22,000 level." BEA Securities.

Chinese Company to Watch: "TC Interconnect (515.HK) – TCI announced a RMB25m LED project in Chengdu. The project enlarged TCI’s client base to commercial enterprises and is expected to enhance growth potential as expanding into commercial lighting market." BOCOM International. 6-13-2011

Brokerages and analysts cited 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
NSLPPRA New Source Energy Partners LP 11.00% Cum Pfd Unit n/a n/a n/a 0

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