China stocks continue to digest healthy gains made in January after running into strong technical resistance in early trading on Monday. But underlying sentiment seems bullish, and more gains are likely after the current consolidation ends.
The Hang Seng Index in Hong Kong basically didn’t budge in shrinking turnover Tuesday, slipping 0.05% to 20,699. The index of Chinese companies fell 0.6% to 11,500.
A stronger flow of funds into global markets in January supports a more bullish view, according to Benny Wong, head of research at BOCOM International, the brokerage arm of China’s Bank of Communications.
He pointed out there was a net inflow of $17.4 billion into global stock markets in January, with 39% going into emerging markets such as China. “I am less pessimistic today than I was previously, simply on better liquidity flow,” he told Equities in an email.
In addition, Wong said, investors seem more optimistic about the European debt debacle following the successful implementation of the European Central Bank’s Long Term Refinancing Operation. In the U.S., the Federal Reserve Board is raising expectations for another round of monetary easing.
He noted that the debt crisis is not over, but said: “In essence, I believe the threat from European debt crisis is mitigating and any slightly positive news from Europe may send global stock market higher.”
But Wong expects that after rising to formidable resistance at 21,000, the current consolidation will be lengthy. It may last through February and March with a trading range of 20,000 to 21,300, he said.
In the meantime, BOCOM International’s strategy is to focus on three areas:
*Sectors benefiting from more monetary easing, especially gold producers.
*Sectors and stocks that underperformed in January as funds now start flowing into second and third liners. Examples are Lifestyle (LFSYY), China VIM Mining (0893.HK) and Chu Kong Petroleum (1938.HK).
*Companies that may soon report earnings surprises, including Tiangong International (0826.HK) and Tai Ping Insurance (CIIHY).
Hong Kong Blue Chips: -11, -0.05%, to 20,699, 2-07-12, Hang Se ng Index
Chinese Stocks in Hong Kong: -65, -0.6%, to 11,00, 2-07-12, HSCE Index
Shanghai Stocks: -1.7% to 2,292, 02-07-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: -7.3, 405.6, 02-03-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong opened higher but dipped into negative territory at the end, partly because of increasing concern about the Greek debt crisis. A drop on Mainland markets dragged down China Insurance (LFC), which fell 2.2%. However, solar energy plays rose. KGI Research
Quotable: "Short-selling turnover ratio for blue-chips decreased to 9.8%. These figures indicated that investors believed that the market still had an upside potential." Core Pacific Yamaichi. 2-7-12
Chinese Company to watch: "Xingda Int'l is leading radial tire cords and bead wires manufacturer in China. Yesterday, share price surged by 8.6% with turnover equals 2.9x 3-month average, rising above sma50 and kept above sma10 and sma20."Guoco Capital. 2-7-12
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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
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