China Stocks Continue Consolidation

Gene Linn |

china StockThis week’s consolidation in China stocks after seven weeks of gains is nothing to worry about, according to one research director.

After opening almost 270 points higher Monday, Hong Kong’s Hang Seng Index dropped 541 points by mid-morning Tuesday. An afternoon turnaround allowed the index to finish the day up 54 points to 21,479 in sluggish turnover. The index of Chinese companies rose 0.2% to 11,690.

“I think this is just a little pullback after recent gains,” said Dickie Wong, research executive director at Kingston Securities.

He told Equities that the Hang Seng is now working in the 21,000-to-21,800 gap that opened up when the index plunged last August after the U.S. credit rating was downgraded. “This week the market will range between 21,000 and 21,800,” Wong said.

He noted a couple reasons China stocks have room to rise. One is that discouraging Chinese economic figures in January, from lower-than-expected bank loans to higher-than-expected inflation, were due to the fact the week-long Chinese New Year holiday fell in that month. More encouraging news is due for February.

Wong also noted that the Hang Seng is lagging U.S. markets despite the attractive valuation of Chinese stocks.

Chinese banks, for example, benefited from the government’s move last Saturday to cut their required reserve ratio and have a PE level below 10 and dividend yields of 4%. End

DAILY FIX

Hong Kong Blue Chips: +54, +0.2%, to 21,479, 02-21-12, Hang Seng Index

Chinese Stocks in Hong Kong: +20, +0.2%, to 11,690, 02-21-12, HSCE Index

Shanghai Stocks: +0.8% to 2,381, 02-21-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -0.6, 418.8, 02-17-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong plunged at mid-morning on profit-taking after the recent rally, but climbed back into positive territory in the afternoon as Mainland markets posted gains. KGI Research

Quotable: "Short-selling pressure was mainly from the China oil sector due to its loss in share price. Besides, China insurance sector was also under short-selling pressure, since investors believed that the current valuation was high." Core Pacific Yamaichi. 2-21-02

Chinese Company to watch: CHINA COMM CONS (1800.HK) "The Group could also benefit from the Twelfth Five year plan by increasing the investments in dredging and coastal heavy machinery manufacturing business, which may enhance the overall profitability." Kingston Securities. 2-20-12

Brokerages and analysts cited here 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 http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. 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: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GCVRZ Sanofi Contingent Value Right (Expiring 12/31/2020 0.27 -0.01 -2.32 26,584

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