Six major central banks brought struggling European banks back from the brink of a disastrous collapse with an infusion of money into the global financial system. China reversed a year’s worth of credit tightening by lowering its banks’ required reserve ratio.
The result was that Hong Kong’s Hang Seng Index roared through strong resistance levels and 10, 20 and 50-day moving averages to soar 5.6% to 19,009. The index of Chinese stocks surged 8.1% to 10,282. Turnover, mired at the HK$50-billion level for weeks, leapt to HK$97 billion.
Is this Big Bang the start of global stock market expansion?
There are some reasons for caution. As for solving the European debt crisis, investors have been disappointed before. A so-called “ultimate solution” in October led to a big stock market rally. But when it became apparent the solution fell short, stocks slumped in November. The European debt mess may just be too deep to resolve in one or two steps.
More bad news and resurging fears about European debt may still hit the market with disturbing regularity.
China’s credit loosening looks more promising. With inflation falling, more required reserve cuts and the start of interest rate reductions are surely in the offing. Each cut will give the market a boost.
However, there is a flip side. Inflation is falling and credit is loosening partly because China’s economy is slowing. China’s November manufacturing PMI came in Thursday below expectations at 49.0. A number under 50 reflects contraction. There are almost certain to be more indications of an economic slowdown in the future, and the market won’t like them.
In other words, probably we are not done with extreme volatility yet. End
Hong Kong Blue Chips: +1,013, +5.6%, to 19,002, 12-1-11, Hang Seng Index
Chinese Stocks in Hong Kong: +773, +8.1% to 10,282, 12-1-11, HSCE Index
Shanghai Stocks: +2.3%, 2,387, 12=1-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +18.3, to 383.8, 11-30-11, Bank of New York Mellon, ADR Index-China
Insight: The Hong Kong market surged above 10, 20 and 50-day moving averages after major central banks acted to help European banks struggling with the region's debt crisis. A drop in Chinese banks; required reserves also cheered investors. The cut helped boost Chinese banks: ICBC (FXI) +10.7%. KGI Research
Quotable: "Supported by good news, market rally should last for a couple of days." BOCOM International. 12-1-11
Chinese Company to Watch: China Datang Renewable Power (1798.HK) The company has approved 1880MW of capacity and developed multiple types of new energy project in over 30 provinces and regions across the country." BOCom International. 12-1-11
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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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