China Stocks not Done Gaining from QE3 -- Analyst

Gene Linn |

China stocks ended this week almost unchanged after surging the last two weeks due to the launch of easy money programs by U.S. and European central banks. However, the money-easing policies could still be a gift that keeps on giving in the next few months.

The Hang Seng Index in Hong Kong rose 0.7% Friday to 20,735, finishing the week up a modest 0.5%. Turnover remained subdued. The index of Chinese companies climbed 1.0% to 9,805, down a scant 0.2% for the week. The Hang Seng shot up 2.9% last Friday when the U.S. Federal Reserve announced round three of quantitative easing and had jumped 3.1% the previous Friday when the European Central Bank started a major bond-buying program.

Despite this week’s mixed results, a Hong Kong-based analyst at one large Chinese brokerage is bullish for the short term because of quantitative easing.

“I expect the (Hang Seng) will challenge 2012 high (achieved in Feb March), namely 21,680,” he told Equities in an email. “If (it is) broken, add another 1,000 points, i.e. target 22,680. Thereafter the market may drop again. “

He speculates the rally sparked by this round of FED easing, QE3, will not last as long as the one started by QE2, which means it will probably peter out in November or December.

Large blue chips such as HSBC (HBC) will likely rise, the analyst said. Infrastructure stocks are another favorite because their prices have fallen a lot this year and they will benefit from additional infrastructure projects in the pipeline. The analyst suggests investors pick the largest companies in the cement, steel and maybe coal sectors. End

DAILY FIX

Hong Kong Blue Chips: +144, +0.7%, to 20,735, 09-21-12, Hang Seng Index

Chinese Stocks in Hong Kong: +97, +1.0, to 9,805, 09-21-12, HSCE Index

Shanghai Stocks: +2, +0.1% to 2,027, 09-21-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: 5.5, 373.9, 09-20-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips started Friday by rising 106 points but further gains were limited when Mainland markets staged only a weak rebound from their big losses Thursday. Chinese telecoms rose after reporting 3G network data: China Mobile (CHL) +1.2%. KGI Research

Quotable: "We recommend short term investors to take profit if the Hang Seng Index is close to 21,000." Guoco Capital. 9-21-12

Chinese Company to Watch: Property company Longfor (LGFRY). "We expect the company sales momentum can be improved in the 4Q12, which will be a catalyst for the stock price." Tanrich Securities. 9-21-12

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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
CMC Commercial Metals Company 16.15 -0.13 -0.80 1,317,540

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