The two biggest clouds overhanging China stocks finally started to break up this week. On Wednesday European leaders finally announced a serious plan to deal with the regional debt crisis that had stifled global markets for more than a year. The day before, Chinese Premier Wen Jiabao indicated China would soon loosen inflation-fighting tight money policies launched late last year.
With the double dose of good news the Hang Seng Index in Hong Kong shot up 11.1% this week to 20,019, and turnover surged by about 50% on Thursday and Friday. Strong third quarter results from Chinese blue chips helped the index of Chinese companies gain even more, rising 15.3% to 10,623.
But investors shouldn’t relax just yet. On the European debt front, Haitong Securities pointed out in its Friday daily commentary that many key details of the new plan need to be hammered out. “For example, even though Greek debt had been greatly deducted, a debt equivalent to 120% of GDP by 2020 was still considered far from bearable.”
And while China has stopped introducing interest rate hikes and other tightening measures, it probably won’t actually start easing credit until next year after expected substantial declines in inflation in November and December.
Another consideration is that China stocks have already accumulated massive gains. Since October 4, just before optimism began to grow for a solution to the European debt problem, the Hang Seng has added 23.2%.
Market corrections, squabbles over Europe debt plan details and mixed signals from the Chinese economy are inevitable in the coming months. And that means that despite an overall brighter outlook, China stocks’ high volatility of the last few months will likely continue. End
DAILY FIX — Big Rally Rolls on
Hong Kong Blue Chips: +331, +1.7%, to 20,019, 10-28-11, Hang Seng Index
Chinese Stocks in Hong Kong: +59, +0.6% to 10,623, 10-28-11, HSCE Index
Shanghai Stocks: +1.6%, 2,473, 10-28-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +16.7, to 398.4, 10-27-11, Bank of New York Mellon, ADR Index-China
Insight: A strong rise in Asian markets helped Hong Kong extend this week’s powerful rally on robust turnover. KGI Research
Quotable: “HK market rebound could persist on the progress of EU Summit and the expectations of Chinese policy fine-tuning.” BOCOM International. 10-27-11
Chinese Company to Watch: “In 3Q11, Anhui Conch’s (AHCHY) revenue rose 49% yoy to RMB12.5bn and net profit was up 125% yoy to RMB3,061mn (EPS: RMB 0.58 in 3Q11, up 125% yoy), in line with market expectation.” Guoco Capital. 10-27-11
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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