Investors are waiting on news from the summit of European leaders later this week and on the release of Chinese inflation numbers on Friday. They also want to see how China’s slowing economic growth and apparent move toward credit loosening play out in the first quarter of 2012.
“We expect investors to be trading short term only,” said Castor Pang, head of research at Core Pacific Yamaichi. “They are focusing on a few weeks or even days, speculating on ups and downs.”
Reports that Europe would double the size of its bailout fund for debt-strapped countries in the region gave a boost to China stocks Wednesday. The Hang Seng Index in Hong Kong rose 1.6% to 19,241 in thin trading. The index of Chinese companies gained 2.2% to 10,485.
“Turnover is very low, and if that continues it’s not possible for the market to have enough momentum to break through major resistance,” Pang told Equities.
The Hang Seng faces powerful resistance at 19,700, he said, noting that the November rally stalled at 19,640. Support is at the 20-day moving average, which is around 18,700.
One short-term target for investors is the Chinese banking sector, according to Pang. They like the prospect of an increase in lending as China eases credit. And in fact there was a report Wednesday that major Chinese banks had increased lending in recent days.
ICBC (FXI) and CCB (CICHY) are Pang’s favorites because their strong asset bases and low loan-to-deposit ratios give them ample room to increase lending. End
Hong Kong Blue Chips: +298, +1.6%, to 19,241, 12-7-11, Hang Seng Index
Chinese Stocks in Hong Kong: +227, +2.2% to 10,485, 12-7-11, HSCE Index
Shanghai Stocks: +0.3%, 2,333, 12-7-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +3.5, to 384.4, 12-6-11, Bank of New York Mellon, ADR Index-China
Insight: Reports Europe would double its bailout fund and a positive outlook for the upcoming European summit meeting boosted Hong Kong stocks. Chinese banks gained on news that major banks had substantially increased lending in the last three days: ICBC (FXI) +2.9%. KGI Research
Quotable: "We expect a quiet market in the next few days while investors wait for the Europe summit outcomes." BOCOM International. 12-7-11
Chinese Companies to Watch: Sands China (SCHYY) "Its business strategy is to continue to develop Cotai (resorts in the Cotai District of Macau) and to leverage on its integrated resort business model to create Asia’s premier gaming, leisure and convention destination." Haitong Securities. 12-7-11
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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
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