China Stocks Fall, But Investors Remain Bullish

Gene Linn |

china bull stocksChina stocks in Hong Kong edged lower today, but many observers still look for a modest rally fueled by strong corporate results in coming weeks.

The blue-chip Hang Seng Index opened lower after another day of U.S. political bickering over raising the country’s debt ceiling to avoid default next week. But gains on Mainland markets helped Hong Kong to erase most of its losses. Both the Hang Seng and the index of Chinese companies closed down 0.1%.

But the rebound that started last Friday isn’t over, according to Castor Pang, head of research at Core Pacific Yamaichi.

“In August the results of major companies in the Hong Kong market are probably going to be better than expected, and that will help push the market higher,” Pang told Equities. “In the short term, the HSI is going higher; 22,800 seems to be the target.” (The index closed at 22,542 Wednesday.)

However, Pang warned that Chinese companies may not benefit much from the on-going results-driven rally.

“Investors are quite nervous about economic growth in China,” he said. Last week’s preliminary July PMI figures indicated Chinese manufacturing is slumping, and there is worry about a significant drop in China’s third quarter GDP growth.

China Mobile may be one Chinese stock that will ride the rising tide in Hong Kong, according to Pang. Otherwise, he said the leaders would be local Hong Kong firms like conglomerate Hutchison and property developers like Sun Hung Kai.

After the results season, Hong Kong may lose momentum as investors monitor Chinese economic growth and U.S. markets, Pang said. But, like many other analysts, he expects a strong rally late in the year as falling inflation allows China to ease economic tightening. His year-end target for the Hang Seng: 26,000.

DAILY FIX -- China Gains Pare Losses in Hong Kong

Hong Kong Blue Chips: -30, -0.1%, to 22,542, 07-27-11, Hang Seng Index

Chinese Stocks in Hong Kong: -17, -0.1% to 12,588, 07-27-11, HSCE Index

Shanghai Stocks: +0.8%, 2,723, 07-27-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +4.6 to 446.6, 07-26-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened lower due to the U.S. debt ceiling impasse, but gains on Chinese markets helped Hong Kong erase most of its losses. Turnover rose on the back of share placements and the debut of recent IPOs. Samsonite (1910), which listed earlier this summer, rose 5.6% because of favorable assessments from several brokers. KGI Research

Quotable: "We believe the Hang Seng Index may reach 23,000-24,000 in August on strong corporate earnings." Guoco Capital. 7-26-2011

Chinese Company to Watch: "SINOMA (01893) Major cement and cement equipment producer with share price lagging behind the market. Prospective P/E of 11x." KGI Research
Brokerages and analysts cited 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

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