China Stocks: Buy Low, but When?

Gene Linn  |

Chinese stocks now resemble a flag hanging limply in the doldrums. A slight breeze will whip it in one direction of another. Greece or Portugal edge toward default – China stocks move sharply lower. An influential analyst insists China will allow its currency to fight inflation, and stocks rebound.

Fundamental influences on Chinese stocks temporarily cancel each other out or are on hold to a large extent. Chinese inflation is stubbornly high, but the economy shows signs of slowing. Major Chinese corporations have released their first quarter results. Puny turnover in Hong Kong means relatively light selling or buying can move the market.

But, for now, moves are limited by opposing forces. On one hand, Chinese inflation and inflation-fighting policies weigh on the market. On the other, many analysts think the fighting will end later this year, and valuations of Chinese stocks are relatively low.

So, should investors wait on the sidelines until there is a clear direction? Not entirely. In the long term you probably can’t go too far wrong buying now because a rebound is highly likely when China tames its inflation. Timing the market is dicey, so maybe investors shouldn’t wait.

But the basic turnaround isn’t going to happen overnight. A sensible strategy for long term investors is to selectively buy Chinese stocks after an ill wind pushes them down – like today.  End


Hong Kong Blue Chips: -60, -0.3%, to 22,901, 05-17-11, Heng Seng Index

Chinese Stocks in Hong Kong: +56, +0.4% to 12,733, 05-17-11, HSCE Index

Chinese Stocks in the U.S.: -5.9 to 428.0, 05-16-11, Bank of New York Mellon, ADR Index-China

Insight: Weak regional markets dragged Hong Kong blue chips lower in weak turnover. The index of Chinese companies edged higher with nuclear equipment suppliers surging after China announced it would unfreeze development of nuclear power. Dongfang (1072) rose 5.7%; Harbin (1133) gained 7.7%. KGI Research

Quotable: "Since the greenback displayed a rather strong movement, we believe the HK market might remain weak for some time and it is possible for the HSI to test below 22500pts." BOCOM International. 5-17-2011

Chinese Company to Watch: "Credit China Holdings (8207.HK, $1.71, HOLD): 1Q11 results robust What’s new: CCH reported a 123% yoy surge in 1Q11 net profit to Rmb28.2m on the back of a 155% yoy leap in turnover to Rmb50.5m.... Our analysis and comments: The results were in line with our forecast but ahead of market expectations." Haitong Securities. 5-17-2011

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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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