China Stocks Hit by Europe Debt Crisis -- Again

Gene Linn  |

What Europe gave to China stocks’ huge rally last week, Europe is taking away this week. Optimism about a solution to the region’s debt crisis vanished this week and took another blow Wednesday when German, French and Greek leaders failed to make progress on Greece’s threat to hold a referendum over last week’s proposed solution.

The Hang Seng Index in Hong Kong sank 2.5% to 19,242, and the index of Chinese companies fell 1.4% in slightly higher turnover.

The good news, according to BOCOM International head of research Benny Wong, is that global liquidity flows seem to show the heavy selling pressure that drove stocks down from August to early October has lifted. That means than 16,250 reached by the Hang Seng Index on October 4 should be the low point for 2011, Wong told Equities in an email.

“Having said that, we do not expect HSI will stabilize at [the] current level and we think volatility will remain in November and December,” he said. BOCOM International, the brokerage arm of China’s Bank of Communications, predicts the Hang Seng will end 2011 about where it is now, between 19,000 and 20,000, with wide swings up and down on the way.

“We remain cautious towards 2012 and we see no easy solution for the Europe’s debt crisis,” Wong said.

One potential bright spot for China stocks investors in the unpredictable market should be China’s selective easing of its tight credit policy to aid specific sectors. Railway equipment makers, railway contractors and small enterprise will probably benefit, Wong said. But he said overall relaxation of tight credit is “virtually impossible” due to stubbornly high inflation.

Wong warns that trying to catch a rebound in this wild market is risky, but he likes Yurun Food (1068.HK), Ping An (PNGAY) and Chongqing Rural Bank (3618.HK). End


Hong Kong Blue Chips: -491, -2.5%, to 19,242, 11-03-11, Hang Seng Index

Chinese Stocks in Hong Kong: -151, -1.4% to 10,295, 11-03-11, HSCE Index

Shanghai Stocks: +0.2%, 2,508 11-03-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +15.6, to 390.7, 11-2-11, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong stocks fell after European leaders failed to make progress on the debt crisis in Greece and the U.S. Federal Reserve Board did not give any indication it would launch a new round of loose credit. Chinese insurance companies and properties retreated. Sino Land (SNLAY) lost 4.0%. KGI Research

Quotable: "We reiterate our view that Hang Seng Index will find support at the 50-day moving average of around 18,900 but is unlikely to surpass 20,500 this month unless we see some relaxation of China’s monetary policy." GUOCO Capital. 11-3-11

Chinese Company to Watch: Ping An Insurance (PNGAY) "We still favor Ping An for the following reasons: 1) Positive changes in macro environment will support the recovery of life insurance business. 2) We estimate Ping An’s net profit to increase by more than 45% in 2012 (assuming HS300 index is up 15% in 2012)." BOCOM International. 11=3=11

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