Hope blossomed anew Monday that Europe’s debt problems may be solved. Add in better-than-expected U.S. Thanksgiving holiday retail sales and the stage is set for China stocks’ first weekly gain since late October.
Reports emerged Monday that the IMF may lend as much as 600 billion Euros to debt-strapped Italy to bring down its surging borrowing costs.
“If it's confirmed, it's a great relief for a year or so and this gives hope that IMF and ECB might eventually step in along with France and Germany to give confidence to the market,” said Jackson Wong, vice president for equity sales at Tanrich Securities.
In response Hong Kong’s Hang Seng Index rose 2.0% to 18,038, and the index of Chinese stocks gained 2.3% to 9,610. The Hang Seng had plummeted 11.6% between October 28 and last Friday as fears of a spreading European debt crisis grew.
But turnover Monday was extremely thin, perhaps reflecting some skepticism over the European deal. Wong told Equities in an email that the report of the IMF rescue plan was like déjà vu. Global markets surged in October after European leaders rolled out a so-called “ultimate solution” to the debt problem. But that solution turned out to be far less than ultimate.
While China stocks are still in the “relief mode,” Wong said, properties, banks and building materials plays are the big gainers. “Li and Fung (LFUGY) and some exporters stand out today because of the better Black Friday crowd,” he added.
The Hang Seng’s short-term resistance is 18,200 and support is 17,700, Wong said. If the Euro gains strength and European bond yields come down this week, he said, the Index might challenge 18,700. End
Hong Kong Blue Chips: +348, +2.0%, to 18,058, 11-28-11, Hang Seng Index
Chinese Stocks in Hong Kong: +214, +2.3% to 9,610, 11-28-11, HSCE Index
Shanghai Stocks: +0.1%, 2,383, 11-28-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -0.3, to 356.9, 11-25-11, Bank of New York Mellon, ADR Index-China
Insight: A report that the IMF would lend 600 billion Euros to debt-plagued Italy helped push the Hong Kong market sharply higher, although turnover remained weak. Strong U.S. Thanksgiving holiday sales boosted exporters: Li & Fung (LFUGY) +3.3%. Chinese properties rebounded: China Overseas (CAOVY) +6.2%. KGI Research
Quotable: "Hong Kong stocks may take a breather after the 2,000-point correction in the past three weeks. Mild rebound is likely on speculation that policy-tightening cycle in China may soon end after PBoC lowered the reserve requirement ratios for five rural lenders in Zhejiang province. Investors’ attentions will also fall on several upcoming large IPOs like Chow Tai Fook, New China Life and Haitong Securities. We see the HSI to be range-traded next week with support at 17,300." BEA Securities. 11-25-11
Chinese Companies to Watch: Cement producers. "On the back of two developmental themes, we are bullish on China Nation Building Materials (3323 HK) based on its M&A potential and benefiting from industry consolidation, and China Resources Cement (1313 HK) and China Shanshui (691 HK) on their regional advantages." Haitong Securities. 11-28-11
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