Let’s take a quick walk down China stocks’ memory lane to see where we’ve been, why we’re where we are and, maybe, where we’re going in 2013.
The great global recession and panic of 2008 and 2009 led to a mammoth Chinese economic stimulus program, much larger on the basis of GDP than America’s.
The massive stimulus supported China’s economic growth, but spawned waste and corruption and by 2011 inflation had raised its scary head.
Interest rate cuts and other tightening policies began to slow the growth of both inflation and the economy as a whole.
Analysts in Hong Kong consistently claimed the measures would tame inflation, leading to a loosening of economic policy and renewed growth by late 2011. Around mid-2011 predictions for Hong Kong’s Hang Seng Index at the end of the year reached around 28,000.
Didn’t happen. Inflation stubbornly persisted. With the debt crisis raging in Europe, political gridlock gripping U.S. economic policy and Chinese economic growth still sinking, the Hang Seng slumped from 23,035 at the end of 2010 to end 2011 at 18,434.
Over-optimism on the fight against inflation continued into 2012. Finally … finally, in late 2012 inflation slid below 2% and manufacturing and other statistics offered proof Chinese economic growth had hit bottom and was reviving. Helped by loose money policy by the U.S. and EU central banks, the Hang Seng Index surged 18.4% from 19,145 on September 5 to the year-high of 22,660 on December 20.
Also contributing to the late 2012 rally: The appointment of new leaders in November gave hope China would shift from spurring growth with lavish spending to targeted stimulus measures and reforms that will improve economic efficiency.
So, as 2013 draws near, at last optimism about China stocks is warranted. The rally may not be as strong as some think and European debt and U.S. political gridlock loom as potential pitfalls. But China stocks have turned an important corner. Tomorrow we’ll look at a major Chinese bank’s take on possible growth areas for 2013. End
Hong Kong Blue Chips: +36, +0.2, to 22,660, 12-20-12, Hang Seng Index
Chinese Stocks in Hong Kong: -36, -0.3%, to 11,352, 12-20-12, HSCE Index
Shanghai Stocks: +6, +0.3% to 2,168, 12-20-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +1.6, 395.94.3, 12-19-12, Bank of New York Mellon, ADR Index-China – closed by storm
Insight: Dragged down by falling U.S. markets and early weakness in Mainland A-shares, Hong Kong blue chips opened lower and once fell below 22,500 before rebounding as A-shares stabilized. Chinese banks fell after the Social Security Fund reduced its stake in ICBC (FXI). KGI Research
Quotable: “No negative medium-term signal…, we see little risk for a major correction to happen.” Core Pacific Yamaichi. 12-20-12
We believe the stock market will enter into a consolidation phase in near term although we remain bullish on H shares for the first quarter of 2013.” Guoco Capital. 12-19-12
Chinese Company to Watch: “Leveraging on the company leading market position and the benefits from the encouraging policies, we recommend a BUY rating to (fertilizer distributor) Sinofert (SNFRY).” Tanrich Securities. 12-19-12
Among the consumption plays in Hong Kong, we believe Belle (BELLY — shoes, sportswear) is in a better position than its peers to enjoy the recovery of China’s domestic consumption, thanks to 1) its integrated supply chain which allows Belle to act fast on changes in consumer demand; 2) wide variety of roduct range which fully covers the mid-to-premium segment; 3) healthier inventory level and 4) superior cost control.” Guoco Capital. 12-19-12
Brokerages and analysts cited here 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