China Stocks Get Temporary Bounce from Window-Dressing

Uncertainty reigns for China stocks with economic and political questions looming in China and the U.S. That will make it tough to reignite the September rally.

On the Thursday Hong Kong’s Hang Seng Index rose 1.1% to 20,762, mainly on end-of-quarter window dressing ahead of a long holiday, according to research from KGI Asia. The index of Chinese companies increased 1.5% to 9,769.

The Hang Seng has traded in a narrow range since U.S. and European central bank stimulus plans fueled a 7.8% surge from September 5 to 14. Now as China’s week-long Golden Week holiday approaches, China faces a major leadership transition in mid-October.

There’s no suspense about who the new leaders will be — there are no cliffhanger  elections in China – but just how they will cope with China’s slowing growth and faltering economic model is not clear.

Meanwhile Europe continues to muddle through its economic crisis without a real solution in sight, and the U.S. faces big elections and a “fiscal cliff” in the form of pending tax hikes and spending cuts.

“We think given a lot of uncertainties, investors would prefer to stay sidelined,” said Ben Kwong, chief operating officer at KGI Asia. “We expect for the local market to consolidate while the HSI is likely to range trade from 20,000 to 21,000.”

Stocks might get a modest boost after the new leaders are announced, Kwong said, because the government might shift its focus back to stimulating the economy. In that case, infrastructure plays could lead the way because that sector offers the most direct way to boost the economy. Speculation that authorities would reduce banks’ required reserve ratios will favor that sector, Kwong told Equties in an email, and brokerages and insurers will gain if the Mainland’s A-share market rebounds. End

DAILY FIX

Hong Kong Blue Chips: +235, +1.1%, to 20,762, 09-27-12, Hang Seng Index

Chinese Stocks in Hong Kong: +140, +1.5, to 9,769, 09-27-12, HSCE Index

Shanghai Stocks: +52, +2.6% to 2,056, 09-27-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -2.0, 371.8, 09-26-12, Bank of New York Mellon, ADR Index-China

Insight: End-of-quarter window dressing ahead of a long holiday pushed Hong Kong higer in increased turnover. Chinese securities firms rose as the Mainland market rebounded: Haitong (HAITY) +6%. A rise in oil prices helped PetroChina (PTR) gain 1%. KGI Research

Quotable: “We recommend investors to accumulate stocks if the benchmark index retreats to around 20,000.” Guoco Capital. 9-27-12

Chinese Company to Watch: China Life (LFC) “The group continued to optimize traditional business, and the innovative products …, these will improve the earning yield and premium income growth in the 2H12.” Tanrich Securities. 9-26-12

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