China Stocks 'Now Face Reality'

Gene Linn  |

China stocks continued their sharp decline Wednesday with no early end to the downturn in sight.

Hong Kong's Hang Seng Index dropped 1.1% to 20,141 in slow trading. The index of Chinese companies sank 0.9% to 10,504.

The Hang Seng will probably fall to 19,500 before stabilizing, one analyst told Equities in an email. After that, market movement will depend on news flow.

Hong Kong and other global markets were propped up in the first quarter by cash injections by the European Central Bank in efforts to ease the Euro debt crisis, the analyst said.

“Now they will have to face reality: Europe ’s debt problem and Chinese economy is slowing down.”

China's slumping economic growth has not yet been fully digested by the market, according to the analyst.

“I think stocks with high-yields will outperform in 2012, such as Hong Kong utilities BUT NOT Chinese utilities,” He said. “When the economy slows, they face the risk of oversupply, eg. electricity, coal etc.” End

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