China stocks seemed to be stuck in the same old rut this week, but one analyst thinks the next few trading days might signal a substantial breakout.
On the surface it was more of the same. In a Hong Kong market that was closed one day, prices swung wildly to end with little change – just like last week. The Hang Seng Index edged up 0.4%, 115 points, to 17,707. The gain came after a plunge of 7.6% on Monday and Tuesday, a holiday Wednesday and sharp rebound the last two days of the week. The index of Chinese companies slipped 0.3%, 29 points, to 8,888 in volatile trading.
And once again the market followed the ups and downs of the European debt crisis. With the Bank of England and European Central Bank adopting an easing policy late this week, the Hang Seng broke above its 10-day moving average of 17,500 on Friday.
It may struggle at that level if short selling continues and turnover does not increase, according to Castor Pang, head of research at Core Pacific Yamaichi. But if turnover rises as buyers surge in to snap up stocks they think are oversold stocks, the Index might test the 50-day moving average of 19,600.
“The next two or three trading days will confirm the trend,” Pang told Equities.
The biggest gainers would likely be Chinese banks, he said. The banks face a problem with bad loans in a slowing economy, he acknowledged, but their values are so low after big sell-offs that they are still attractive.
He especially likes CCB (CICHY) and ICBC (FXI). End
DAILY FIX — Hutchison Whampoa Surges
Hong Kong Blue Chips: +535, +3.1%, to 17,707, 10-07-11, Hang Seng Index
Chinese Stocks in Hong Kong: +316, +3.7% to 8,888, 10-07-11, HSCE Index
Shanghai Stocks: Closed for holiday 2,359, 10-07-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +8.3 to 361.0, 10-06-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong rallied in tandem with U.S. and European markets as fears subsided, at least temporarily, concerning European debt and the U.S. economy. Major China port operator Hutchison Whampoa (HUWHY) jumped 10.5% after reporting that its stock price was at a discount of nearly 50% to its net asset value. KGI Research
Quotable: “We expect the improved sentiment would last for a while longer.” BOCOM International. 10-7-11
Chinese Company to Watch: E-commerce provider Alibaba (ALBY), “If the Company succeeds in acquiring Yahoo!, the scope and scale of the Company’s business will further expand. Alibaba’s current share price is relatively attractive, we believe that the acquisition rumor will serve as a catalyst for its stock price and therefore advise a bargain hunt for Alibaba.” CFSG. 10-6-11
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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