Dismal economic prospects for China equaled a dismal performance for China stocks this week, with Hong Kong blue chips retreating Friday for the fourth time in five days. Signs of economic weakness in Europe and a pullback by the U.S. market accelerated the decline.
Hong Kong’s Hang Seng Index, which includes numerous big Chinese companies, fell 1.1% Friday to end the week 3.0% lower at 20,669. The index of Chinese companies dropped 1.0% Friday and 5.0% for the week to 10,659. Turnover remained soft Friday.
Recent bad news about the Chinese economy includes a lowering of GDP expectations by the Chinese government and an anemic preliminary manufacturing PMI number for March.
The worry about the slowdown in the Chinese economy, and about the effect it might have on corporate earnings, will hurt market sentiment in the near term, said Ben Kwong, chief operating officer at KGI Asia.
But he said end of the quarter window dressing might support stocks prices. “So we do not expect to see too substantial (a) drop in the coming week,” he told Equities in an email.
Investors have become concerned about corporate governance problems in Chinese private companies, Kwong said, which is pushing funds to large cap stocks.
Among the potential beneficiaries are companies in the export sector, such as port operators and trading companies, he said. These could also gain from the relatively good outlook for the U.S. market.
Chinese banks might get a boost from speculation China will reduce its reserve requirement ratio to help the economy, Kwong said. End
Hong Kong Blue Chips: -233, -1.1%, to 20,669, 03-23-12, Hang Seng Index
Chinese Stocks in Hong Kong: -109, -1.0%, to 10,659, 03-23-12, HSCE Index
Shanghai Stocks: -1.1% to 2,350, 03-23-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: -4.2, 399.7, 03-22-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong closed lower for the fourth time this week amid worry over slowing Chinese economic growth and signs of weakness in Europe. Big bank ABC (ACGBY) tumbled 3.1% after announcing weaker-than-expected results. But trading company Li & Fung (LFUGY) reported results that beat market expectations and rose 4.2%. KGI Research
Quotable: “In 1Q12, the weak renminbi reflected softening economic fundamentals. However, we expect the … pickup in economic activity in 2Q12 to lead to a 3% appreciation of the currency in 2012.” CCB International. 3-21-12
Chinese Company to Watch: “Minsheng Bank (CMAKY) Restructuring in 2011 proved effective.Net profit attributable to equity holders grew 58.81% YoY to RMB27.92bn in 2011, while diluted EPS was RMB1.05, 3.3% above our forecast and much better than consensus,…” BOCOM International. 3-23-12
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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