T hat consolidation didn’t last long. After retreating from a major resistance level early Monday, China stocks charged back through it Wednesday. One analyst says that this time there’s no looking back.
Hong Kong’s Hang Seng Index, which features numerous big Chinese companies, jumped 1.5% Wednesday in increased turnover to close at 21,018. The Index broke the 21,000 barrier Monday morning but quickly fell back to around 20,700. The index of Chinese companies climbed 1.8% to 11,706.
This time the Hang Seng will keep heading higher, according to Peter So, managing director and co-head of research at CCB International, an arm of the major China Construction Bank.
“Overseas markets have stabilized, which gives investors more confidence to send funds to Asia,” he told Equities.
After breaking through strong resistance at 21,000 the Hang Seng will find new resistance at 21,500, So said. And the Index may have enough momentum to break through 21,500 and test 21,700.
He said the main beneficiaries of the rekindled rally at first will be large cap stocks like banks and insurance companies such as Ping An Insurance (PNGAY) and China Pacific (CHPXY). Then investors will move to second and third-tier stocks.
One potential roadblock to a renewed rally would seem to be the announcement of China’s January inflation figure on Thursday. CCB International expects recent substantial drops in inflation will end in January with a result of 4.0% or above compared with 4.1% in December.
However So said, “In general investors know Chinese credit will loosen. They know that January was seasonal (because of the Chinese New Year holiday) and inflation will be down in February.”
So expects another cut in Chinese bank’s required reserve ratios this month and an interest rate drop in the second quarter. End
Hong Kong Blue Chips: +319, +1.5%, to 21,018, 2-08-12, Hang Se ng Index
Chinese Stocks in Hong Kong: +206, +1.8%, to 11,706, 2-08-12, HSCE Index
Shanghai Stocks: +2.4% to 2,348, 02-08-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: -0.8, 404.8, 02-07-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips opened higher on speculation there would be progress in Greek debt negotiations and broke through the 21,000 resistance level in the afternoon following a rally in Shanghai. China announced a hike in the price for refined oil, boosting downstream producers like Sinopec (SHI) which rose +1.8%. Second and third-tier sports companies soared: Anta (ANPDY) +14.8%. KGI Research
Quotable: “We consider 21,000 as a strong resistance level for the Hang Seng Index. We reiterate our view that short-term investors should take profit on cyclical stocks. We also recommend an underweight position on Chinese property developers given poor property sales for January.” Guoco Capital. 2-8-12
Chinese Company to watch: “ZHENGTONG AUTO (1728.HK) took over Shenzhen City Zhongqi Nanfang which has 11 dealership brands, including Jaguar, Land Rover and Volvo, significantly expanding the network for premium vehicle brands.” Kingston Securities. 2-7-12
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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