The Shanghai composite index slumped 0.6% to 2,074 in the first day of trading after the Golden Week Holiday. Hong Kong’s Hang Seng Index sank 0.9% to 20,885 in thin turnover, and the index of Chinese companies fell 1.3% to 9,840.
There was hope that Chinese markets would lead China stocks in Hong Kong and abroad higher after Mainland authorities last week finally set a day – November 8 – for the key 18th Communist Party Congress. New leaders will be announced at the congress and they are expected to launch new policies to revive China’s struggling economy. The current leadership apparently has shelved any bold economic reforms or stimulus to give the new leaders free rein.
However, anticipation of major changes was not enough to push stocks higher Monday. Any major boost will probably have to wait until the meeting actually starts, according to Dickie Wong, executive director of research at Kingston Securities.
“There will be no major policy changes before November 8,” he told Equities.
And there are other short-term restraints on the market, Wong said. One is strong technical resistance after a sharp rally in September. Another is that there is little upside for major players like HSBC (HBC) and China Mobile (CHL).
Wong expects the market to stabilize in the short term around three big Chinese banks, ICBC (FXI), CCB (CICHY) and Bank of China (BACHY). All three have very low valuations, be said, with single-digit PE ratios and dividend yields of more than 5%. End
Hong Kong Blue Chips: -188, -0.9%, to 20,825, 10-8-12, Hang Seng Index
Chinese Stocks in Hong Kong: -125, -1.3%, to 9,840, 10-8-12, HSCE Index
Shanghai Stocks: -12, -0.6% to 2,074, 10-08-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +1.3, 381.3, 10-4-12, Bank of New York Mellon, ADR Index-China
Insight: Despite firm markets in the U.S. and Europe on Friday, Hong Kong fell when Mainland stocks re-opened lower after a week-long holiday. High-end jewelers lost ground due to less-than-expected spending by Mainland tourists last week: Luk Fok (0590, HK) -7.9%. KGI Research
Quotable: "The China domestic stock markets will re-open next Monday after the long Golden Week, while major stock indexes are seen tracking gains in global equities during this week to trade higher. In the local bourse, the Hang Seng Index is expected to consolidate around 20,600-21,100, as investors may take a ‘wait-and-see’ stance before the release of China’s September economic data and the third-quarter earnings results later his month." BEA Securities. 10-5-12
Chinese Company to Watch: "We like (department store operator) Intime (INTIY) because it continued to consolidate its leading position in Zhejiang and further strengthen its competitive position in Hubei, Anhui, Beijing and other Northern egional markets, as well as its strong growth prospect on the back of concentrating stores in its core market." Tanrich Securities.
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