China Stocks Face Pre-Holiday Doldrums

Gene Linn |

China stocks retreated from a 21-month high Thursday and prospects are dim for another rally before the Chinese New Year holiday on February 10.

The Hang Seng Index fell 0.4% to 23,730 after closing at the best level in 21 months on Wednesday. Turnover also dropped, indicating a lack of momentum and a slowing of activity before the holiday. The index of Chinese companies slipped 0.3% to 12,131.

Wednesday’s surge was due to the settlement of futures contracts, said Castor Pang, head of research at Core Pacific Yamaichi.

“Now we’re back at normal trading,” he told Equities. “Turnover was up just a little on Wednesday, which showed investors are cautious. They aren’t likely to make a major move before the New Year.”

Some warning signs exist that may cause the market to drift lower before the holiday, Pang said. One is that the inflow of foreign funds into Hong Kong is dwindling, and the other is the possibility the rally in the Shanghai Composite Index is stalling out below 2,400. The index edged up 0.1% Thursday to 2,385.

Pang sees the Hang Seng trading between 23,200 and 23,800 before the holiday February 10.

A couple sectors that he said might fare well in the lackluster market are building materials and power-generating companies, which now lag the market. Pang likes China Resources Power (CRPJY). A Hong Kong-based subsidiary of the conglomerate China Resources, CR Power features more nimble decision-making than the bigger state-owned firms that dominate the power sector. End


Hong Kong Blue Chips: -93, -0.4%, to 23,730, 1-31-13, Hang Seng Index

Chinese Stocks in Hong Kong: -42, -0.3%, to 12,131, 1-31-13, HSCE Index

Shanghai Stocks: +3, +0.1% to 2,385, 1-31-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: -1.6, 401.8, 1-30-13, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips sank 155 points in early trading, but pared their losses after finding support at the 10-day moving average. Profit warnings hurt Maanshan Iron (MAANY), down 8%, and Angang Steel (ANGGY), off 5%. KGI Research

Quotable: "Weakening of HK$ may indicate funds are leaving." BOCOM International. 1-31-13

Chinese Company to Watch: CHAOWEI POWER (951, HK) "Mainland battery leader, FY13 prospective P/E of 5.8x. Share price fell to placement level which will (provide) support." KGI Asia. 1-31-13

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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of 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:


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