China Stocks Close to Breaking Out of Rut?

Gene Linn  |

Writing weekly reports on Chinese stocks has become routine. Good news from overseas drives stocks in the gateway Hong Kong market a couple percent higher; then bad news forces a retreat of about the same amount. Stocks end the week close to where they started. That may be about to change.

This week an easing of the European debt crisis spurred a surge on Tuesday, while weak U.S. economic data pushed stocks down on Thursday. With worries of another Chinese interest rate looming, the market took another tumble Friday. For the week the blue-chip Hang Seng Index ended down 0.7%, 168 points, at 22,950. The index of Chinese companies fell 1.6%, 210 points, to 12,751.

A “wariness” pervades the market because of foreign economic problems and China’s push to control inflation with economic tightening, Howard Gorges, vice chairman of South China Brokerage, told Equities. But he noted there is a lot of money around poised to get into the market.

The entry likely will be gradual at first. “There’s a feeling that if tight monetary policies in China are nearly over, it might be a good time to pick up some stocks,” Gorges said.

Tight Chinese policies certainly will continue for the short term, and many analysts think there might be another interest rate hike this weekend.

Subscribe to get our Daily Fix delivered to your inbox 5 days a week

But Gorges said some investors think the next interest rate may be the last one. Perhaps in coming weeks, according to Gorges, China might indicate monetary policy will be loosened. Another prospect is that a big Chinese state bank, a banking regulator or a sovereign debt pension fund will signal that buying stocks is a good investment.

Then Chinese stocks will start a sustained rally. And writing weekly reports will get more complicated.  End


Hong Kong Blue Chips: -304, -1.3%, to 22,950, 06-03-11, Hang Seng Index

Chinese Stocks in Hong Kong: -226, -1.7% to 12,751, 06-03-11, HSCE Index

Shanghai Stocks: +0.8%, 2,728, 06-03-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +4.4 to 441.6, 06-02-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips sank below their 10-day and 20-day moving averages in heavier trading. Chinese coal producers plunged: Shenhua (1088) lost more than 6%. KGI Research

Quotable: "China faces a higher inflationary risk than a slowing economic growth. We raise our forecast of May CPI to 5.4% on a rebound in agricultural prices in late May." BOCOM International. 6-2-2011

Chinese Companies to Watch: CNBM (3323), Anhui Conch (0914). "BOC International reiterated its bullish view on the cement sector. The brokerage house sees strong support for cement prices going forward as there is potential easing of oversupply by 2013." BEA Securities. 5-27-2011

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:

Market Movers