China Stocks Off Day Lows, But Still Lower

Gene Linn |

China Currency RMBGrowing European debt woes, signaled by rising bond prices, weighed on China stocks again in Hong Kong on Wednesday. Help for China stocks is on the way, according to a number of analysts. They expect China to start reversing interest rate hikes and increases in banks’ reserve ratio requirements that were launched last year to fight inflation.

For the time being, though, the Hang Seng Index sank 2.0% Wednesday to 18,961, and the index of Chinese companies fell 2.9% to 10,332.

For investors looking for an upturn, the question is, when will the cuts start and when will they begin to benefit China stocks?

A number of observers think the cuts won’t start until next year. “China doesn’t want property prices to surge again, so it won’t be this year,” said Castor Pang, head of research at Core Pacific Yamaichi.

But he told Equities that anticipation of rate decreases could push stocks higher soon, even in coming days. He sees major resistance at 19,700 and expects the Hang Seng to see-saw between 18,900 and 20,200.

Pang recommends accumulating Chinese banks. He likes China Merchants Bank (CIHKY), CCB (CICHY) and ICBC (FXI) because their asset quality is good. “Their loan-to-deposit ratio is still low, and when the reserve requirement goes down they’ll have huge potential for more loans,” he said. End

DAILY FIX

Hong Kong Blue Chips: -388, -2.0%, to 18,961, 11-16-11, Hang Seng Index

Chinese Stocks in Hong Kong: -306, -2.9% to 10,332, 11-16-11, HSCE Index

Shanghai Stocks: -2.5%, 2,457, 11-16-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +2.1, to 393.4, 11-15-11, Bank of New York Mellon, ADR Index-China

Insight: Worsening debt problems in Europe and a sharp drop in Chinese markets pushed Hong Kong lower. Blue chips opened higher but once sank as much as 580 points before ending down 388 points in thin trading. The decline in Mainland A-shares drove insurance stocks lower. China Life (LFC) fell 5.1%. Chinese banks retreated after the IMF released a report stating they faced significant risks. KGI Research

Quotable: "Besides low turnover in the market, several technical indicators also showed the momentum was vanishing." Core Pacific Yamaichi. 11-16-11

Chinese Companies to Watch: "Coal sector is likely to remain positive and enjoy growth momentum in the upcoming peak season. We are especially bullish on Yanzhou Coal and maintain “Buy” rating and TP of HK$35.91, which represents upside of 70.6%." BOCOM International. 11-16-11

Brokerages and analysts cited 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
LFC China Life Insurance Company Limited American Depo 13.15 -0.30 -2.23 602,815
ROIC Retail Opportunity Investments Corp. 22.13 -0.26 -1.16 484,134

Comments

Emerging Growth

VirtualArmor International Inc.

VirtualArmor International Inc is engaged in handling the design, configuration and installation of advanced network, cybersecurity, and cloud architecture solutions and serves as an ongoing resource for its clients.

Private Markets

POMM

POMM Inc. unveils new Android and iPhone Security and Privacy Solution – a must-have add on to any smartphone user. POMM (Privacy on My Mind™) is a mini-computer encased inside…

Cross Campus

With over 500 members and operating 80,000 square feet by summer 2016, Cross Campus is one of the country’s top ten shared, collaborative office or "coworking" operators in the US.…