China stocks’ mid-November swoon stabilized Friday, but the market has a new worry to add to concerns from the U.S. and Europe.
The Hang Seng Index in Hong Kong edged 0.2% higher to 21,159 in reduced turnover, and the index of Chinese companies rose 0.4% to 10,458.
Rising fears about the approaching U.S. fiscal cliff and worsening European debt problems have driven the Hang Seng down 4.3% since November 7 and 1.1% for this week.
Now China’s critical 18th Party Congress has ended after promoting new leaders expected to launch much-needed reforms and stimulus measures in coming months. The close of the Congress could be a problem for stocks, according to Ben Kwong, chief operating officer at KGI Asia.
China’s A-share market has held steady during the Congress, he told Equities, but now the Shanghai Composite Index may plunge below the key 2,000 level, dragging Hong Kong down with it. The Shanghai index dropped 0.8% Friday to 2,015.
In addition, a stronger U.S. dollar, which pulls investment away from emerging markets, and weaker U.S. stock markets could push the Hang Seng lower, Kwong said. But he sees “very strong support” around 20,500 to 20.800. The keys for next week are developments in U.S. negotiations over the fiscal cliff and whether the Shanghai index can remain above 2,000.
“In terms of stock pick, we suggest that high dividend yield stock and defensive plays like telecom (and) REITs would be a better choice as market is volatile right now,” Kwong said. He also said cement producers may be attractive after recent losses. End
Hong Kong Blue Chips: +50, +0.2, to 21,159, 11-16-12, Hang Seng Index
Chinese Stocks in Hong Kong: +43, +0.4%, to 10,243, 11-16-12, HSCE Index
Shanghai Stocks: -16, -0.8% to 2,015, 11-16-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: -2.0, 367.2, 11-15-12, Bank of New York Mellon, ADR Index-China – closed by storm
Insight: Hong Kong opened modestly higher and traded in a narrow range on thin volume. Chinese home appliance makers sank as government subsidies are due to end in January: Haier (HRELY) -6.4%. Exporter Li & Fung (LFUGY) dropped 4.7% because of slowing Wal Mart sales. KGI Research
Quotable: “We may see some rebounds today but downward trend is not broken yet.” BOCOM International. 11-16-12
Chinese Company to Watch: Cosmetics retailer Sa Sa International (SXJAY) “While the shares may see near-term profit-taking pressure after the recent strong run, the stock will continue to be the leading outperformer in HK retail sector, in our view.” BOCOM International. 11-16-12
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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