China Stocks Almost Unfazed by U.S. Debt Ceiling Struggle

Gene Linn  |

Drama over U.S. politicians’ failure to agree on a solution to raise the U.S. debt ceiling played a minor role for China stocks in Hong Kong Monday. Instead the market focused more on Chinese inflation and upcoming corporate results. The expectation of bountiful corporate profits might even fuel a short-term rally, according to Conita Hung, head of equities at Delta Asia Financial.

The Hong Kong blue-chip Hang Seng Index posted a moderate 0.7% drop Monday. The decline wasn’t unusual following the 2.1% surge on Friday, Hung said. The U.S. debt ceiling imbroglio weighed on stocks, but she expects some solution soon.

A bigger factor for Chinese stocks was a report that last Friday top Chinese officials would continue to focus on fighting inflation in the second half of 2011 and will continue to institute economic tightening measures. Investors had hoped China would ease tight economic policies as inflation fell in the last six months of this year.

The index of Chinese stocks in Hong Kong slumped 1.3% Monday, and the Shanghai Composite Index tumbled 3.0%.

Still, the focus on corporate results might spark a rebound, Hung said, with resistance at 22,900, about 2.7% above Monday’s close.

She said gains will likely come from blue chips like China Mobile and HSBC, which will announce results starting next week.  End

DAILY FIX --  Short-term Focus on Corporate Results

Hong Kong Blue Chips: -152, -0.7%, to 22,293, 07-25-11, Hang Seng Index

Chinese Stocks in Hong Kong: -158, -1.3% to 12,441, 07-25-11, HSCE Index

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Shanghai Stocks: -3.0%, 2,689, 07-25-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +4.1 to 444.7, 07-22-11, Bank of New York Mellon, ADR Index-China

Insight: The short-term focus for the market will be on Corporate results. The fatal high-speed rail accident in China last week drove stocks in China Locomotive and Rolling Stock (CSR, 1766) down 14.0%. Funds flowed into airlines and toll road operators: China Eastern Airlines (0670) +4.8%; Shenzhen Expressway (0548) +7.1%. KGI Research

Quotable: "The overhang surrounding Greece’s precarious fiscal situation was temporarily removed but the HSI is expected to be capped at it nearest resistant level of 22,800 in the coming week amid concern over the Chinese economy after China PMI recorded a contraction in June." BEA Securities. 7-25-2011

Chinese Company to Watch: Evergrande (3333). "Chinese property stocks tumbled in June due to concerns that housing prices in China will fall sharply in the second half of the year given a continuous credit crunch and increase in interest rates. Starting July, share prices of Chinese property developers outperformed the market on the back of continued achievement of robust property sales revenue. Evergrande is the best performing developer month-todate among the top ten players." Guoco Capital. 7-22-2011

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