Late-night drama in the U.S. House of Representatives drove China stocks lower Friday, but the underlying Chinese economic picture remains bright for investors in 2013.
Hong Kong’s Hang Seng Index slumped 0.7% to 22,506, down 0.4% from last week’s finish. The index of Chinese companies dropped 1.1% to 11,229, off 0.7% this week.
The Hang Seng finished at the best mark of the year seven times from December 5 to this Thursday, buoyed by optimism about the rebounding Chinese economy and prospects new leaders would implement effective stimulus measures and reforms.
But the market suffered a moderate pullback when House Republicans, after apparently walking away from negotiation with the White House, failed Thursday evening to pass their own “plan B” to keep the U.S. from going over a fiscal cliff of tax hikes and spending cuts early next year.
U.S. leaders may still reach some solution to the fiscal threat, but even if they don’t, the stronger Chinese economy and confidence in new leaders will support growth in China stocks in 2013.
BOCOM International touts four major themes that will lift stock prices of some Chinese companies next year. BOCOM International is the brokerage arm of China’s Bank of Communications. It’s “Top 10 Stock Picks” of the second half of 2012 surged 27.7%, better than the Hang Seng’s rise of 18.5%.
The first theme in the brokerage’s 2013 outlook is the inflow of hot money. Loose monetary policies in the U.S. and Europe are sending waves of cash into Hong Kong and much of it ends up in stocks. A disproportionate share will go to “mid/small-cap ideas with low P/E and specific growth drivers,” BOCOM International said. It likes software firm Kingsoft (3888, HK), among others.
A second theme is asset reflation. “We favor mid-cap mainland property laggards with low land cost and accelerating launches, e.g. Agile
China’s goal to double GDP by 2020 will boost the urbanization and consumption theme, BOCOM International said. Cosmetics, food and snack-maker Hengan (HEGIY) will benefit.
“Beautiful China” is a concept born of dissatisfaction with environmental degradation and social tensions arising from unbalanced distribution of wealth. Sinopec (SNP) stands to gain from a push for cleaner burning natural gas. Emphasis on social welfare will help Taiping Insurance (CTIHY). End
Hong Kong Blue Chips: -153, -0.7, to 22,506, 12-21-12, Hang Seng Index
Chinese Stocks in Hong Kong: -123, -1.1%, to 11,229, 12-21-12, HSCE Index
Shanghai Stocks: -15, -0.7% to 2,153, 12-21-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +2.4, 398.3, 12-20-12, Bank of New York Mellon, ADR Index-China – closed by storm
Insight: Hong Kong blue chips retreated from the previous year-best close after U.S. efforts to avoid next year’s fiscal cliff suffered a setback Thursday night in the House of Representatives. Chinese banks fell: CCB (CICHY) -1.9%. KGI Research
Quotable: “Market will probably stay flat till yearend.” BOCOM International. 12-21-12
Chinese Company to Watch: GUANGSHEN RAIL (GSH) “With steady income from Railway operation, current price is trading at perspective P/E of only 12.1 times with over 4% dividend yield; the counter is a defensive play.” KGI Asia. 12-21-12
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