The last time blue chips in Hong Kong’s China gateway market sank near the 21,600 level they bounced back on a healthy two-week rally. Tuesday afternoon stocks rebounded after approaching the same level, but Delta Asia Financial head of equities Conita Hung thinks they are poised to go down, not up.
“I think the market will consolidate at 21,500, but then it will go down another 1,000 points,” she told Equities.
On June 24 the blue-chip Hang Seng Index hit the year-low close of 21,600 before rallying to 22,736 on July 11. Global debt and stock woes and worries about Chinese inflation drove stocks down from there. The index sank to near 21,600 early Tuesday afternoon before posting a modest 0.4% gain.
This time, Hung said, the rally is probably short-lived. “There are so many uncertainties,” she said. “There’s the debt crisis in the U.S. and Europe and worry that China could tighten its economy further.”
The U.S. wrangle over raising the debt ceiling to prevent default could get more serious before it gets better. A lowering of the U.S. credit rating might hit soon, even before the August 2 deadline on the debt ceiling. “That would have a major impact on the market,” Hung said, “but it might be temporary because eventually there will be a solution.”
For the time being, most China stocks look unattractive, she said. China banking stocks, for example, are not good buys now. She prefers defensive stocks such as Hong Kong retailers or Macau gambling plays.
It is possible to find some defensive stocks from China. KGI Research likes Huaneng Power (0902) which has a dividend yield of 6% (see below). End
DAILY FIX — Chinese Bank, Cement Plays Weak
Hong Kong Blue Chips: +98, +0.4%, to 21,902, 07-19-11, Hang Seng Index
Chinese Stocks in Hong Kong: +39 +0.3% to 12,299, 07-19-11, HSCE Index
Shanghai Stocks: -0.7%, 2,797, 07-19-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -5.5 to 430.4, 07-18-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong stocks continued to slide as “unresolved U.S. and European debt problems heat(ed) up negative atmosphere.” However, after a drop early in the afternoon, stocks bounced back to post modest gains in light trading. Chinese banks remained weak. CMB (3968) was flat after plans for another round of fund raising emerged. Chinese cement producers fell: Anhui (0914) -3.0%. KGI Research
Quotable: “The major resistance for HSI will be 20-day MA or 22,100. On the other hand, the short-term supports for HSI will be the lower bound of Bollinger Band which is 21,500.” Core Pacific Yamaichi. 7-19-2011
Chinese Company to Watch: “HUANENG POWER (00902) Dividend yield of 6% which is highly defensive. Share price fell to recent low level, which lagged behind other power plays.” KGI Asia. 7-18-2011
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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