Expectations China will soon bestow economic goodies on Hong Kong overcame worry over the Euro debt crisis Wednesday, at least temporarily bolstering China stocks in the former British colony.
Hong Kong’s blue-chip Hang Seng Index rose 1.0% to close above the key 19,000 level at 19,177. The index of Chinese companies gained 0.7% to 9,461.
The Hang Seng was flat in the morning due to discouraging news that Germany would not agree to a joint Euro bond to help defuse the debt crisis, according to KGI Research. But in the afternoon the market focused on prospects Hong Kong will get favorable new policies from China next week on the 15th anniversary of the transfer of Hong Kong sovereignty to the Mainland.
One of the most eagerly anticipated policies is introduction of a Hang Seng Index ETF on Shanghai and Shenzhen markets that would allow Mainland investors to buy into Hong Kong-listed stocks.
But the long-running European debacle is nowhere near resolution, and Chinese A-shares continued to slump closer to the critical 2,200 level in Shanghai, falling 0.2% Wednesday to 2,217.
Reflecting the gloomy long-term outlook, BOCOM International lowered its forecast for Chinese GDP growth in 2012 from 8.5% to 8.3%. The brokerage arm of China’s Bank of Communications also revised its outlook for Chinese 2012 export growth from 10% to 8%, citing the uncertainty of demand from Europe.
Blue chips in Hong Kong are at a very low 9.5X forward PE valuation, BOCOM said, but that may not help stocks until the earnings down cycle is complete.
The Hang Seng could rebound to the high end of a 23,000-to-16,000 range later this year in the absence of bad news, BOCOM said.
“Conversely, should the European debt crisis deteriorate, the HSI may test the low end of this range, in our view,” the brokerage said.
BOCOM did list some “Buys,” including Minsheng Bank (CMAKY) and Prada (PRDSY).
It said Minsheng is reaping “remarkable benefits” from the micro finance loan business, and Prada has a relatively good ability to expand its margins. End
Hong Kong Blue Chips: +195, +1.0%, to 19,177, 06-27-12, Hang Seng Index
Chinese Stocks in Hong Kong: +63, +0.7%, to 9,461, 06-27-12, HSCE Index
Shanghai Stocks: -6, -0.2% to 2,217, 06-27-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +5.0, 356.0, 06-26-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong stocks were flat Wednesday morning due to news Germany would not agree to joint Euro bonds to defuse the region’s debt crisis. But the market turned around on expectations China would introduce favorable economic policies next week for the 15th anniversary of handover of Hong Kong sovereignty to China. Jeweler Chow Tai Fook (1929.HK) jumped 6.4% when earnings met expectations. KGI Research. 6-27-12
Quotable: “So, even though the HK market was quite weak, if introduction of QE3 continues to be the market focus, market outlook will be bullish again. We expect the outlook of HK market to continue to be seesawing again. The short-term trading range for HSI will be from 18,577 to 19,578.” Core Pacific Yamaichi. 6-26-12
Chinese Company to Watch: Singyes Solar (750.HK) “The company got stable growth in report period, the growth of revenue in major business is consistent with expectation, the growth rate in revenue and gross profit is 35% and 32.7%. The trend will be maintained in 2012.” Phillip Securities. 6-27-12
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 .