Growing 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
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
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