China's New Year Rally Slows

Gene Linn  |

It was fun while it lasted, but the 2012 rally seems to be running out of steam – for now.

Fueled by a lower-than-expected drop in Chinese economic growth, good economic news from the U.S., a lack of terrible news about the European debt crisis and the traditional Chinese New Year bump, Hong Kong’s Hang Seng Index has surged 11.2% this year.

On Friday the Hang Seng extended the rally, barely, by edging up 0.3% to 20,502 in lower turnover. It has actually gained only 0.2% since opening strongly Thursday, the first trading day after Chinese New Year. The index of Chinese companies rose 0.3% on Friday to 11,447.

Noting the shrinking gains and falling turnover, Benny Wong, head of research at BOCOM International, said, “This seems to signify the rally will soon come to a rest.”

Market direction in February and March hinges on the news flow, he told Equities in an email.

Among the news to look for are a cut in Chinese banks’ reserve requirement ratio and other steps to loosen last year’s inflation-fighting tight credit policy. Chinese inflation and GDP figures will largely determine credit policy, with falling inflation and GDP a signal for more loosening.

Also on the radar is the U.S. economy and last year’s market-killer, the European debt crisis, including possible default by Greece.

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For now Wong recommends high beta, relatively volatile stocks, such as Chinese properties, banks and basic materials companies. End


Hong Kong Blue Chips: +63, +0.3%, to 20,502, 1-27-12, Hang Seng Index

Chinese Stocks in Hong Kong: +30, +0.3%, to 11,447, 1-27-12, HSCE Index

Shanghai Stocks: +1.3%, 2,298, 01-20-12, Shanghai Composite Index. Closed for a Holiday.

Chinese Stocks in the U.S.: -1.0, 397.0, 01-26-12, Bank of New York Mellon, ADR Index-China

Insight: The Hong Kong New Year rally slowed as the relative strength index indicated the market was substantially overbought. Exporter Li & Fung (LFUGY) gained more than 3%, but Chinese properties retreated 2-3%. KGI Asia. 1-27-12

Quotable: "The figures for short-selling activities declined, as the market became less bearish on the market outlook ahead us." Core Pacific Yamaichi. 1-27-12

Chinese Company to Watch: Giordano International (GRDZF) "In view of Giordano’s strong 1Q11 results, we believe that profitability will continue to improve on the back of a more favourable economic environment across the company’s major markets in 2Q11." Haitong Securities. 1-27-12

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

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