The black hole that is the European debt crisis swallowed up more China stocks prices this week as global markets sank. Next week doesn’t look much better, and some analysts are searching for defensive plays.
Rising bond prices in Europe this week signaled falling confidence in the region’s economy and helped drag the Hong Kong’s Hang Seng Index down 3.4%, 326 points, to 18,491. The index of Chinese stocks fell 4.3%, 473 points, to 9,957. Turnover sank to near rock-bottom levels amid investor caution.
Next week’s first support level will be 18,300, according to Conita Hung, head of equities at Delta Asia Financial. The Hang Seng will find strong technical support at 17,700, she told Equities.
With stock prices headed down, Hung favors defensive stocks. “Mainland retailers are safe picks for the short term,” she said. “Other possibilities are Macau gambling stocks.”
Hung likes snack food maker Want Want (WWNTY), noodle and bakery producer Tingyi (TCYMY) and Mengniu Dairy (CIADY) in the Chinese retailing sector. “They are better than financial stocks because they’re not affected by European debt or the weak global economy,” she said.
She also said telecoms offer a comparatively safe haven. The most secure may be giant China Mobile (CHL) with its stable income and high dividend yield. For the more adventurous investor, China Unicom (CHU) is more aggressive in seeking new customers.
Hong Kong Blue Chips: -326, -1.7%, to 18,491, 11-18-11, Hang Seng Index
Chinese Stocks in Hong Kong: -271, -2.6% to 9,957, 11-18-11, HSCE Index
Shanghai Stocks: -1.9%, 2,417, 11-18-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -8.9, to 376.3, 11-17-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong’s Hang Seng Index dropped below its 50-day moving average as the worsening European debt crisis hit global markets hard. Turnover sank, reflecting investors’ caution. Chinese banks, insurers and property developers all retreated. Research
Quotable: “We expect the benchmark index to move between 18,000 and 20,000 in near term, but the risk is on the downside in near term given rising European bond yields.” Guoco Capital. 11-18-11
Chinese Company to Watch: OOIL (0316.HK) “Its principal business is engaged in cargo transportation and logistic business…. Given its strong balance sheet, OOIL could have a better defensive power during the current negative market environment and to gain more market share…. Share price 45% discount to book NAV, which already discounted favorable factors.” KGI Asia. 11-18-11
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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