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.
For now Wong recommends high beta, relatively volatile stocks, such as Chinese properties, banks and basic materials companies. End
DAILY FIX
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 http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN
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