China stocks continued to storm ahead Friday, with the path apparently clear to 22,000 on the Hang Seng Index in Hong Kong.
The Index stalled after a big rally in January, until last Wednesday when it broke through 21,000 and the key 250-day moving average. After a small pull-back Thursday, the Hang Seng Index on Friday gained 214 points, 1.0%, to 21,492. The index of Chinese companies rose 139 points, 1.2%, to 11,712.
For the week, the Hang Seng climbed 3.4% and the index of Chinese companies added 2.7%.
In addition to breaking above the 250-day moving average, another positive sign — according to Eric Yuen, head of research at Guoco Capital — is the market’s low ratio of short selling to total market turnover. “Institutions are not keen to go short at this level,” he said.
He told Equities the current rally has legs. “Technically speaking there is no great resistance between 21,000 and 22,000,” he said. “In the next two weeks we should hit 22,000.”
If the Hang Seng hits 22,000, Yuen said, the red-hot market may cool down a bit.
Meanwhile, leading the charge to 22,000 will be big Chinese banks, Yuen said. Although they have their negatives, such as rumors of selling by strategic shareholders, the banks are lagging behind overall market gains and have attractive valuations of 6-7X PE, he said.
The biggest Chinese banks are the ones most likely to rise, Yuen said. And those are ICBC (FXI) and CCB (CICHY). End
Hong Kong Blue Chips: +214, +1.0%, to 21,492, 02-17-12, Hang Seng Index
Chinese Stocks in Hong Kong: +139, +1.2%, to 11,712, 02-17-12, HSCE Index
Shanghai Stocks: +0.01% to 2,357, 02-17-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +5.5, 419.4, 02-16-12, Bank of New York Mellon, ADR Index-China
Insight: Buoyed by a sharp rise on Wall Street, Hong Kong posted a solid gain in slightly higher turnover. Hong Kong properties, which triggered Wednesday’s surge through the critical 250-day moving average, were strong again: Hang Lung Properties (HLPPY) +3.7%. Macau gaming plays soared: Sands (LVS) +6.2%. KGI Research
Quotable: “HK market once fell 207 points or 1% during the day. However, major indexes did not break any major MA (movig average).” Core Pacific Yamaichi. 02-17-12
Chinese Company to watch: “BJ ENT WATER (0371.HK) Amid mainland policy to develop sewage business. Its red chips background would favor the Group to speed up its earnings growth through acquisition.” KGI Asia
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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.