Encouraging news from China these days does not necessarily mean gains for China stocks. Take Thursday, for example. China announced the July exports grew at a faster-than-expected pace of 20.4% year-on-year. And the Shanghai market posted a solid rebound of 1.3%.
The Shanghai rise did reduce Hong Kong losses, but still the blue-chip Hang Seng Index slumped 1.0% and the index of Chinese stocks fell 0.7% as fears about European and U.S. debt and sagging global economic growth continued to steamroll everything.
The increase in Chinese exports was good news for the export sector and for China’s economy as a whole because it was another piece of evidence the China will not suffer a hard landing despite efforts to combat inflation by tightening monetary policies.
But don’t expect a rally in export-related stocks. “At this point the macro development is more important than short-term developments,” said BOCOM International head of research Benny Wong. At the macro level there is worry the economies of Europe and the U.S. will slow or even go into a recession, reducing demand for goods from China. This worry undercuts investor confidence in Chinese export stocks despite encouraging news in July.
It’s also significant the export increase came despite a steady appreciation of China’s RMB currency, a move that normally stunts export growth. This gives China room to continue to boost the RMB. And the downgrade in the U.S. credit rating could cause China to curb its voracious appetite for U.S. dollars by accelerating appreciation of the RMB, according to BOCOM International’s daily market comment.
Appreciation of the RMB is usually catnip for investors because it boosts the value of profits for Chinese companies when the earnings are converted to U.S. dollars. Not now.
“China has gradually appreciated the RMB for nine months,” Wong said. “In theory (appreciation) should be positive for stocks, but in reality stocks had been flat and recently have gone down substantially.”
The lesson for investors at least for the short term is they had better batten down the hatches to ride out the storm that is roiling U.S. and European markets. End
DAILY FIX -- Shanghai Rise Cuts Hong Kong Losses
Hong Kong Blue Chips: -189, -1.0%, to 19,595, 08-11-11, Hang Seng Index
Chinese Stocks in Hong Kong: -78, -0.7% to 10,503, 08-11-11, HSCE Index
Shanghai Stocks: +1.3%, 2,582, 08-11-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -14.5 to 376.6, 08-10-2011, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong followed Wall Street lower after fears of a spreading European debt crisis hit stocks in New York. A rally on the Shanghai market cut some of Hong Kong's losses. Gold-related stocks rose in line with the soaring price of gold: SPDR Gold ETF (2840) +1.2%. KGI Research
Quotable: "The immediate support would be 19,300, while next support would be Tuesday’s low of 18,868. For resistance, the first and second resistance would be 20,000 and last Friday’s gap level of 20,643 respectively." KGI Asia. 8-11-11
Chinese Company to Watch: "China Mobile (941 HK), Tracker Fund (2800 HK) and CCB (939 HK) were the stocks with the highest short-selling turnover. It implied that investors were pessimistic about the performances on these three counters." Core Pacific Yamaichi. 8-11-11
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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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