China stocks continued to swoon Wednesday as China’s downgrade of its estimate of growth weighed on the market.
The Hang Seng Index in Hong Kong sank 0.9% to 20,628, and the index of Chinese companies fell 1.3% to 10,976. Turnover was brisk, but down substantially from Tuesday’s robust figure.
The Hang Seng bounced between 21,200 and 21,800 for two weeks before Chinese Premier Wen Jiabao said China’s GDP growth this year would be 7.5%, not the original target of 8.0%. Starting Monday the index has plunged 4.4%.
The damage from the downgrade was deeper that it might first appear, according to Benny Wong, head of research at BOCOM International, the brokerage arm of China’s large Bank of Communications.
He told Equities in an email that the premier also announced the GDP target for the current five-year plan had been revised downward to 7.0%.
“This is scary because 2011 was 9.2%, if 2012 is 7.5%, this implies GDP for 2013 – 2015 will be 6.2%,” Wong said.
Another worry, he said, is that some analysts think China can’t afford to slow down because then bad debts and hidden liabilities from the past would surface.
As if that weren’t enough, Wong said, “China’s economy faces some difficulties in the next few years.”
Exports are slowing, and the massive 2008 rescue package proved investment was not a long-term solution. Consumption may not be the savior some think, Wong said, because of uneven distribution of wealth.
Wong thinks the Hang Seng will continue falling to 20,000.
“Beware of those sectors/companies that outperformed in the first two months, they will likely fall more in the downturn, such as China property, basic materials, insurance, banks, retail,” he said. End
Hong Kong Blue Chips: -178, -0.9%, to 20,628, 03-07-12, Hang Seng Index
Chinese Stocks in Hong Kong: -143, -1.3%, to 10,976, 03-07-12, HSCE Index
Shanghai Stocks: -0.6% to 2,395, 03-07-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: -12.5, 397.3, 03-06-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips opened 280 points lower, burdened by losses in U.S. and European markets and technical selling after blue chips fell below the 250-day moving average. However the loss narrowed because of technical buying of stocks that had suffered big declines. China Life (LFC) issued a profit warning and slumped 6.1%. On the other hand, food and beverage stock Want Want (WWNTY) rose 7.0% after posting better-than-expected earings. KGI Research
Quotable: “We believe the market correction is short-lived and technically driven. Hang Seng Index will receive strong fundamental support at 20,000. The release of China’s weak economic data on Friday could be a great buying opportunity.” Guoco Capital. 3-7-12
Chinese Companies to watch: “We recommend investors to accumulate large caps with quality earnings such as ICBC (FXI), CCB (CICHY) and AIA Group (AAGIY).” Guoco Capital. 3-7-12
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