China stocks cooled from their recent scorching rally Friday but still posted a nice gain for the week.
Hong Kong’s Hang Seng Index slumped 0.7% in thin turnover to 20,136, and the index of Chinese companies sank 0.6% to 9,905. As of Thursday the Hang Seng had soared 7.4% since July 5, and ended the week 2.4% higher. The index of Chinese companies rose 2.5%.
Ironically bad news helped fuel the rally. Discouraging Chinese economic statistics released this week increased hope China would ease monetary policies, and struggles in European and U.S. economies raised similar expectations in those regions.
With hope for easier money largely priced in, it may be hard to see where the impetus for a new rally will come from in the short run. Will a largely expected cut in Chinese banks’ required reserve ratio or the launch of QE3 in the U.S. provide much of a boost? On the other hand there’s room for disappointment if these moves don’t materialize. And there’s always bad news in the wings from the European debt crisis.
For now, investors’ focus will shift away from macro-economic expectations, said Ben Kwong, chief operating officer at KGI Asia. The new emphasis will be on corporate results, such as the one from Internet firm Tencent (TCEHY) next Wednesday and China Mobile (CHL) on Thursday.
“Hence, institutional investors are likely to re-shuffle (their) investment portfolio mix according to the upcoming earnings performance and outlook of the corporations,” Kwong told Equities in an email.
In addition, expectation China will increase infrastructure spending will help cement prices rebound, he said, and the prospect of monetary easing from the U.S. and Europe will encourage short-term speculation in properties. End
Hong Kong Blue Chips: -133, -0.7%, to 20,136, 08-10-12, Hang Seng Index
Chinese Stocks in Hong Kong: -57, -0.6%, to 9,905, 08-10-12, HSCE Index
Shanghai Stocks: -5, -0.6% to 2,169, 08-10-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +3.4, 382.5, 08-09-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips lost ground after recent sharp rises, but the Hang Seng Index found support at the 20,000 level. Exporter Li & Fung (LFUGY) crashed 19.3% after reporting a big loss instead of the expected large gain. KGI Research
Quotable: “From the inflation perspective alone, the continuous fall in July CPI to below 2% was mainly attributable to food prices while non-food CPI actually increased. Therefore, we believe the fall in CPI will not support further monetary relaxation.” BOCOM International. 8-10-12
Chinese Company to Watch: “…the China TV business unit ranked at number 1 in both sales volume and revenue market shares, in mainland China LCD TV market and China 3D LCD TV market. We expect Skyworth can continue to benefit from surging 3D/Cloud TVs demand in China. Another potential short-term catalyst could be China’s subsidy program that would launched on 10 Aug and last for 40 days for purchase of small household appliances, with maximum subsidy of 10% transaction price.” Tanrich Securities. 8-10-12
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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