A massive gain on Tuesday and welcome news on the European debt and U.S. economy fronts could not rescue China stocks this week.
After a 9.2% plunge last week, Hong Kong’s Hang Seng Index jumped 4.2% on Tuesday due to short-covering from its oversold position, according to Ben Kwong, chief operating officer at KGI Asia. Optimism also emerged that European authorities were taking steps to head of a default by Greece on its debt. Then good economic news came from the U.S. overnight Friday.
However, the Hang Seng, with its strong contingent of big Chinese companies, ended the week with a negligible gain of 0.4%, edging up 77 points to 17,592. The index of Chinese companies sank 1.3%, 116 points, to 8,917.
One problem was that moves on the European debt crisis were only “minor improvements,” with no comprehensive solution in sight, Kwong said. And with confidence in Europe still weak funds flowed into the U.S. dollar and away from Asian stock markets.
Concerns about asset values for Chinese banks charged to the fore on Friday. The lenders are saddled with bad loans made during China’s massive 4 trillion RMB stimulus push during the global financial crisis of 2008 and 2009, and central authorities expect them to cover some of the huge debts piled up by local governments.
On top of these problems, China stocks will lack direction from the Mainland next week because Chinese markets will be closed for the National Day holiday.
“For the coming weeks, (the) market is likely to remain volatile,” Kwong told Equities in an email. “Given the uncertainties, I think defensive plays like telecom and utilities as well as high yield stocks would have better performance.” End
DAILY FIX — Chinese Banks Drag Down Hong Kong Market
Hong Kong Blue Chips: -419, -2.3%, to 17,592, 09-30-11, Hang Seng Index
Chinese Stocks in Hong Kong: -360, -3.9% to 8,917, 09-30-11, HSCE Index
Shanghai Stocks: -0.3%, 2,359, 09-30-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -1.8 to 359.4, 09-29-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips opened 65 points lower and continued to fall, dragged down by big declines in Chinese bank stocks. Worry about declining asset values hit big banks like the Agricultural Bank of China (OTC ACGBY, 1288 in Hong Kong), which plunged 8.5%. KGI Research
Quotable: “Short-selling turnover for the market increased again. Total amount was up 32% to HK$9.55bn. Blue-chips short-selling turnover was up 48% to HK$6.37bn. The short-selling turnover ratios for these two groups were 13% and 22%, respectively. It reflected the sentiment that the market would retreat again in the near term.” Core Pacific Yamaichi. 9-30-11
Chinese Company to Watch: “The giant banks such as ICBC (IDCBY;1398 HK), CCB (CICHY; 939.HK), BOC (BACHY; 3988.HK) plunged 3.81%, 2.31% and 3.02%, respectively. It means investor confidence in the financial sector has not been restored.” Haitong Securities. 9-30-11
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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