China stocks joined global markets in a powerful surge Friday following encouraging news from Europe and the U.S. However, the continued weakness in the Chinese economy may put a ceiling on gains.
A new bond-buying program in Europe and better jobs outlook in the U.S. helped the Hang Seng Index in Hong Kong jump 3.1% to 19,802. Heavy activity in shares placements fueled a major gain in turnover. The index of Chinese companies climbed 4.0% to 9,428.
Stocks had been tumbling in the last three weeks due to a string of poor corporate results and discouraging Chinese economic figures, but Friday’s gains allowed the Hang Seng and the index of Chinese companies to both rise 1.6% for the week.
However, the gloom in China is not going away in the short-to-medium term.
“I don’t think we’ll reach 20,000 yet because earnings and the economy are still poor,” said Francis Lun, managing director at Lyncean Securities.
He told Equities the main gainers would be lagging stocks such as Macau gambling plays and AIA (AAGIY). End
Hong Kong Blue Chips: +593, +3.1%, to 19,802, 09-07-12, Hang Seng Index
Chinese Stocks in Hong Kong: +353, +4.0%, to 9,428, 09-07-12, HSCE Index
Shanghai Stocks: +76, +4.0% to 2,128, 09-07-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +5.8, 359.1, 09-06-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong rose sharply along with other global markets due to the announcement of a bond-buying program in Europe and to encouraging employment news in the U.S. Chinese coal and cement stocks soared. China Coal (CCOZY) jumped 8.2%, and China Resources Cement (CARCY) surged 14.0%. KGI Research
Quotable: “A combination of better job data from U.S., the European Central Bank’s bond purchase program and China’s acceleration in railway investments are likely to improve market sentiment leading to a strong rebound in Hong Kong’s stock market. We expect the Hang Seng Index to test 19,800 in near term.” Guoco Capital. 9-7-12
Chinese Company to Watch: First Tractor (FIRRY) “Benefit from government policy to support agricultural sector: The group is market leader which will benefit from government supporting and subsidizes policies on agricultural sector. Fair valuation: The current price implies 6.7x P/E, valuation is fair, investors would consider accumulating for long term investment.” KGI Asia. 9-7-12
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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