China stocks bounced back from Monday and Tuesday’s bungee cord dive, but investors should expect further stomach-churning ups and downs, according to Castor Pang, Core Pacific Yamaichi head of research.
Hong Kong’s blue chip Hang Seng Index, with its sizeable component of large Chinese companies, plunged nearly 5% Monday and Tuesday, largely on fears Europe’s debt crisis was spreading to Italy. But Pang told Equities the drop was “overdone” because investors were “too pessimistic about European debt.”
Another factor helping Wednesday’s rebound was the release of better-than-expected Chinese second quarter GDP figures. China’s economic growth expanded 9.5% in the second three months of 2011, down modestly from 9.7% in the first quarter, allaying fears of a hard landing by the Chinese economy.
At the end of trading Wednesday the Hang Seng rose 1.2% and the index of Chinese Companies jumped 2.2%.
But investors shouldn’t get too comfortable, Pang said. China will probably introduce further credit-tightening measures, extending volatility in Chinese stocks. “Investors should look for stocks to see-saw in the third quarter,” he said. Like most other analysts, Pang expects a solid rally in the fourth quarter.
Meanwhile, he said, defensive utility stocks are a good bet. Pang likes Cheung Kong Infrastructure Holdings (1038 in Hong Kong). It has limited exposure in China. But it has utilities in Hong Kong, the U.K. and Australia as well as China, lessening the risks of a downturn in any one area. End
DAILY FIX — Chinese Properties Continue to Shine
Hong Kong Blue Chips: -379, -1.7%, to 22,347, 07-13-11, Hang Seng Index
Chinese Stocks in Hong Kong: -259, -2.0% to 12,497, 07-13-11, HSCE Index
Shanghai Stocks: +1.5%, 2,795, 07-13-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +7.3 to 435.2, 07-13-11, 10:14 am ET Bank of New York Mellon, ADR Index-China
Insight: Hong Kong stocks rebounded from sharp losses as fears concerning European debt eased and China reported stronger-than-expected second quarter GDP growth. Chinese properties continued to rise: China Overseas (0688) +5.7%. KGI Research
Quotable: “Concerns over European debt crisis shall be contained; Rebound expected after heavy correction.” BOCOM International. 7-12-2011
Chinese Companies to Watch: Chinese properties. “We expect market sentiment to improve slightly in July, but are unlikely to see a strong recovery until the peak season in September and October…. Our top picks for July are Country Garden and KWG Property.” CCB International. 7-12-2011
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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