China stocks could use some good news this week. After hitting the year-high on April 8, blue chips in the China gateway of Hong Kong slipped 5.1% by the end of last week. Hong Kong’s index of Chinese stocks slumped 5.9%.
The main culprit for the decline is worry about Chinese economic tightening brought about by rising inflation. China will announce the April inflation rate Wednesday, but don’t get your hopes up for good news. March inflation rose from 4.9% in February to 5.4%, the highest rate in almost three years. Conita Hung, head of equities at Delta Asia Financial, told Equities she expects April inflation to rise slightly to 5.5%. Some analyists, such as those at Core Pacific Yamaichi, think inflation will remain stubbornly high, but fall to 5.2%.
The market widely expects a Chinese inflation-fighting interest rate hike, and uncertainty over the rise is one of the biggest drags on China stocks now. Raising interest rates is generally bad news for stocks, but Hung said a hike might relieve uncertainty and spark a rebound.
Chinese and U.S. officials meet in America on Monday and Tuesday. The U.S. is set to press China to raise its interest rate to push the Chinese currency higher, a perennial U.S. concern. Little else is scheduled this week; first quarter corporate announcements have been made, and there are no Chinese company IPOs until next week. End
Hong Kong Blue Chips: +177, +0.8%, to 23,336, 05-09-11, Heng Seng Index
Chinese Stocks in Hong Kong: +86, +0.7% to 12,934, 05-09-11, HSCE Index
Chinese Stocks in the U.S.: +4.1 to 439.7, 05-06-11, Bank of New York Mellon, ADR Index-China
Insight: A rebound in recently hard-hit Chinese commodity producers helped push Hong Kong stocks higher, but turnover was thin amid market uncertainty and ahead of a holiday Tuesday. Investors are waiting for Chinese inflation figures to be announced Wednesday. If inlation continues to be high, as expected, more economic tightening in China is likely. KGI Research
Quotable: "The Chinese CPI inflation, due on Wednesday, is expected to stay stubbornly high at 5.2% in April, after a 5.4% rise in March, which is likely to lead to another rate hike on the Mainland this month. Nonetheless, a decent market rebound in the blue-chip index is expected to stage soon following its long losing streak, with initial resistance near 23,600." BEA Securities. 5-7-2011
Chinese Company to Watch: "Anxin-China (1149): "(The) Chinese government targets market size of (the high-technology security warning) industry to reach RMB500bn by 2015. The Company will benefit from the government policy." Core Pacific Yamaichi. 5-9-2011
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