Feverishly awaited Chinese inflation numbers released Saturday were not encouraging. But it looks like investors still think inflation-fighting interest rate increases are over and the late-year rally in Chinese stocks is still on.
Chinese stocks in Hong Kong had bounced sharply higher the previous five trading days, even after a surprise interest rate hike last Wednesday. The reason: Investors thought inflation peaked in June, giving Beijing room to ease its economic tightening. But Saturday’s numbers indicate inflation may not peak until July.
China’s CPI rose to 6.4% in June from 5.5%. BOCOM International said in its Daily Market Commentary the June figure was slightly above market expectations of 6.2%. The brokerage also pointed out that represented a month-to-month increase of 0.3% contrasted to a 0.6% average decline in June the previous 11 years, “reflecting that the country still faces high inflationary pressure.”
The main culprit for the rise was higher food prices. BOCOM pointed out that agricultural prices climbed in early July. If they continue to rise, it said, the July CPI could rise to about 6.6%.
However, even though inflation may not have peaked in June, there are signs investors still think there will be no more interest rate increases. One indication, according to KGI International, is that interest-rate sensitive Chinese properties posted strong gains in Hong Kong on Monday. For example, Evergrand (3333 in Hong Kong) rose 3.1%. Another sign was that A-shares on the Mainland stabilized on Monday. The Shanghai Composite Index edged 0.2% higher.
BOCOM said that despite the possible inflation increase in July, Hong Kong’s blue-chip Hang Seng Index could exceed 25,000, up about 12% from Monday, in the second half of this year, “given easing inflationary pressure and stable economic growth.” End
DAILY FIX -- Profit-taking Pushes Stocks Lower
Hong Kong Blue Chips: -379, -1.7%, to 22,347, 07-11-11, Hang Seng Index
Chinese Stocks in Hong Kong: -259, -2.0% to 12,497, 07-11-11, HSCE Index
Shanghai Stocks: +0.2%, 2,803, 07-11-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -1.1 to 443.7, 07-08-11, Bank of New York Mellon, ADR Index-China
Insight: Profit-taking after recent gains and weak economic numbers from China, the U.S. and Europe forced stocks lower in Hong Kong, despite stable prices on Mainland markets. Turnover was very slow. KGI Research
Quotable: "The closely watched June CPI will be released this Saturday (9th Jun), which is expected to rise at a faster pace of 6.3%, compared with 5.5% in May, while the Q2 GDP data will be due on 13th Jun. The blue-chip index is expected to consolidate near 22,400-22,800 next week, as investors may sit back ter recent gains and take a ‘wait-and-see’ approach before the start of earnings season in late July." BEA Securities. 7-8-2011
Chinese Company to Watch: Heavy duty truck manufacturer Sinotruk (3808) rebounded sharply during the week, following investment upgrade by Goldman Sachs on its cheap valuation. Meanwhile, rumours of supportive government policy in the PRC automobile industry also helped support its share price." BEA Securities. 7-8-2011
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