China Stocks' Euphoria Fades; Rally Still on Track

Gene Linn |

China Stocks Rebound from Steep LossesChina stocks’ Friday mania faded on Monday, but the rally probably is not over.

Hong Kong’s Hang Seng Index rose a modest 0.1% to 20,658 in healthy turnover. The index of Chinese companies sank 0.5%.

Massive gains in the last two Fridays fueled a 7.9% surge since September 5. Two Friday’s ago the European Central Bank threw investors into a frenzy with a plan for big bond purchases to increase liquidity, and last Friday it was the U.S. Federal Reserve’s turn. China, on the other hand, has been a party pooper, delaying much-expected monetary loosening that would help its sagging economy.

Shanghai’s Composite Index plunged 2.1% Monday, contributing to reduced gains in Hong Kong. But the market was due for a break anyway, said Jackson Wong, vice president of sales at Tanrich Securities.

“After two frantic Friday surprises, I believe the market should consolidate a bit before the 21000 barrier,” he told Equities in an email. But he said sentiment is still positive: “If (the) ECB carries out their action as promised, the market should be able to re-challenge this year’s high (21,680) by the end of the year, even in coming weeks.”

The cash infusion from the ECB and the Fed makes commodity plays and properties the favorites now, Wong said, and “will likely jack up all commodities higher for the rest of the year.” China stocks are lagging, but any new stimulus plan will help financials, infrastructure and machinery makers catch up.

“So expect the enthusiasm to calm down a bit this week, but investors will be eager to get back when we see any pull back,” Wong said. End

DAILY FIX

Hong Kong Blue Chips: +28, +0.1%, to 20,658, 09-17-12, Hang Seng Index

Chinese Stocks in Hong Kong: -49, -0.5, to 9,781, 09-17-12, HSCE Index

Shanghai Stocks: -45, -2.1% to 2,078, 09-17-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +8.1, 380.4, 09-14-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips opened solidly higher after Friday's big rally, but lost most gains due to a plunge by the Shanghai market. But the a loosening of monetary policies in the U.S. and Europe in the last two weeks still gives Hong Kong upward momentum.

Quotable: "The local bourse is expected to take a breather next week, after HKMA announced late on Friday new measures to curb the local property market by reducing mortgage ratio for non-first home. Nevertheless, the downside should be limited in the short run with 20,200 being the near-term support for the HSI." BEA Securities. 9-14-12

Chinese Company to Watch: Garment retailer YGM Trading (375, HK) "Since our last update on 28Jun2012, the share price of YGM has stabilized and we view the current price as an attractive price to enter given the upside potential and the possibility of another special dividend payout." Core Pacific Yamaichi. 9-14-12

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

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