China Interest Rate Cut No Tonic for Stocks

Gene Linn |

China Currency RMBInterest rate cuts, normally a tonic for the market, proved to be bitter medicine on Friday for China stocks. Instead of rising sharply with the prospect of easier money and economic growth stimulus, stocks in Hong Kong barely budged in light trading.

The Hang Seng Index slid 0.04% to 19,801, and the index of Chinese companies slumped 0.2% to 9,680. An early week rally helped the Hang Seng gain 1.8% for the week while Chinese companies rose 1.1%.

A cut In Chinese lending rates Thursday brings benefits of lower borrowing costs, according to Ben Kwong, chief operating officer at KGI Asia. It also re-distributes some of banks’ huge profits to corporations and depositors.

“I think it is positive for most Chinese companies,” Kwong told Equities in an email.

However, the unexpected cut also raised investors’ concerns that Chinese economic statistics due next Monday would show discouraging weakness, he said.

And interest rate cuts by European banks on Thursday created more worry about a global economic slowdown.

One sector that could benefit, though, would be airlines because of their high borrowing costs, Kwong said.

Interest rate sensitive sectors like housing, cement, and other fixed assets would also gain, he said. End

DAILY FIX

Hong Kong Blue Chips: -8, -0.04%, to 19,801, 07-06-12, Hang Seng Index

Chinese Stocks in Hong Kong: -23, -0.2%, to 9,680, 07-06-12, HSCE Index

Shanghai Stocks: +23, +1.0% to 2,225, 07-06-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -1.6, 372.7, 07-05-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong stocks ended little changed as a surprise interest rate cut in China raised fears that Mainland economic statistics due on Monday would be worse that had been expected. And a drop in European rates raised concerns about a slowing global economy. With a less lucrative interest rate spread, Chinese banks lost ground: CITIC Bank (CHCJY) -3.2%.. However, Chinese properties rose. KGI Research

Quotable: "Conditions for breaking 250-day MA were still there. HSI did not break 250-day MA yet. However, the overall momentum was still strong currently." Core Pacific Yamaichi. 7-6-12

Chinese Company to Watch: "FIRST TRACTOR (FIRRY) Government will increase subsidy to agricultural equipment to Rmb22bn in 2012. The Group will also enhance its product mix to improve its profitability." KGI Asia. 7-5-12

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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