China Stocks Look to Consolidate Last Week's Big Gains

Gene Linn |

China economy Hong KongRobust response for jeweler Chow Tai Fook’s offering and brighter outlook for China in 2012 may help China stocks hold on to last week’s major gains. However, the ups and downs of the European debt crisis will continue to have a major influence.

The Hang Seng Index in Hong Kong posted a moderate gain Monday in light trading, rising 0.7% to 19,180. The index of Chinese companies rose 0.5% to 10,412. The Hang Seng jumped 7.6% last week on optimism over a European debt solution and credit loosening in China.

This week the market is encouraged that Chow Tai Fook (1929.HK) is expected to have a P/E ratio much higher than its peers when it begins trading, scheduled for December 15. Overall several brokerages came out Monday with positive predictions for China plays in 2012, KGI Research reported. A cut in Chinese banks’ reserve ratio last week is widely thought to be the start of a round of monetary easing in China.

Still, the market may consolidate this week after last week’s big gain, according to Jackson Wong, vice president of equity sales at Tanrich Securities. And investors will be awaiting results of an EU summit meeting due at the end of the week.

“Investors do not expect a once-and-for-all resolution,” Wong said in an email to Equities. But they are looking a roadmap to solve the crisis, including clearly defined roles for the IMF and European Central Bank.

Investors may also be cautious ahead of the release of Chinese inflation figures on Friday. Wong expects uncertainty to keep the market in a range of 18,700 to 19,600 this week.

High-end retailers should do well, given the good response to the Chow Tai Fook IPO, he said. Hope for more Chinese credit loosening may help Chinese banks. And sanctions on Iran and China’s efforts to revitalize growth should boost energy and raw materials stocks. End

DAILY FIX

Hong Kong Blue Chips: +139, +0.7%, to 19,180, 12-5-11, Hang Seng Index

Chinese Stocks in Hong Kong: +62, +0.5% to 10,412, 12-5-11, HSCE Index

Shanghai Stocks: -1.1%, 2,333, 12-5-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -2.9, to 380.9, 12-2-11, Bank of New York Mellon, ADR Index-China

Insight: China stocks posted a moderate gain in Hong Kong in light trading after several brokerages released optimistic outlooks for China plays in 2012. Good response to jeweler Chow Tai Fook's (1929.HK) offering lifted other jewelers, including Luk Fook (0590.HK). KGI Research

Quotable: "For the coming week, investors will closely watch the ECB policy meeting on 8th Dec to see if there will be another rate cut or new easing measures as well as the EU Summit on 9th Dec. The HSI is expected to approach 20,000 in the next couple of weeks, as both year-end window dressing and good news from policymakers may emerge to lend support to the global equity markets." BEA Securities. 12-2-11

Chinese Company to Watch: LIFESTYLE INT'L (LFSYY) "Expect strong sales in the upcoming Christmas and new year holiday. The Group recently repurchase stock at HK$17-20, which will increase investors confidence." KGI Asia. 12-5-11

Brokerages and analysts cited have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don't endorse them.
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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AZO AutoZone Inc. 779.61 20.73 2.73 794,553

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