China stocks hit a 21-month-high close in Hong Kong Wednesday, but it is hard to pick winning stocks amid signs more gains may be hard to come by in the short term.
The Hang Seng Index jumped 0.7% to 23,822, ending a weeks’ long struggle to top resistance at 23,700 and posting the best finish in 21 months. The index of Chinese companies rose 0.8% to 12,172.
A rebound in shares of ICBC helped fuel Wednesday’s rise. The giant Chinese bank fell Tuesday due to Goldman Sach’s share placement.
But a number of factors will limit more gains, according to Ben Kwong, chief operating officer at KGI Asia. A drop in the Hong Kong dollar indicates the inflow of foreign funds is slowing, he told Equities, and there has been a pick-up in fund raising recently to further decrease liquidity. And he added: “Technically the market is overbought.”
On the other hand, strong markets overseas and in China will buoy Hong Kong stocks.
Overall, Kwong said, “With the approach of (Chinese) New Year (February 10) activity will slow and the market will move sideways for the short term.”
Decreasing market activity makes it hard to pick stocks on the rise, he said. Buying is rotating swiftly from one stock and sector to another. “A stock will be good today and bad tomorrow,” Kwong said.
Some possible winners might be stocks that benefit from Chinese government policies, he said. That includes infrastructure plays like China Railway Construction (CWYCY). And telecoms like China Mobile (CHL) and China Telecom (CHA) have lost ground recently and may be due for a rebound. End
Hong Kong Blue Chips: +167, +0.7%, to 23,822, 1-30-13, Hang Seng Index
Chinese Stocks in Hong Kong: +94, +0.8%, to 12,172, 1-30-13, HSCE Index
Shanghai Stocks: +24, +1.0% to 2,382, 1-30-13, Shanghai Composite Index.
Chinese Stocks in the U.S.: +0.9, 399.6, 1-29-13, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips rose to a 21-month high close in solid turnover, although February futures contracts failed to break resistance at 24,000. A jump in Mainland A-shares helped Chinese brokerages: Citic Securities (CIIHY) +6.4%. KGI Research
Quotable: “If Shanghai Composite cannot break the current peak in the coming weeks, HSI may be dragged down to test the 20-day MA. The trading range for HSI will be 23,088 to 23,800.” Core Pacific Yamaichi. 1-28-13
Chinese Company to Watch: Property company CIFI Holdings (Group) Co. Ltd (884.HK) “The focus on 1st-tier cities, especially Shanghai and Beijing, allows CIFI to tap the robust growth of both purchasing power and demand for properties in large cities…. The current valuation is attractive, in our view, given its solid fundamentals and growth potential.” BOCOM International. 1-19-13
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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