China stocks plummeted as a wave of selling swept from the U.S. to Hong Kong following the Federal Reserve Board’s gloomy assessment of the U.S. economy and introduction of only limited Fed efforts to stimulate the economy.
The Hang Seng Index, which includes numerous large Chinese companies, reached a two-year low, ending down 4.8% to 17,912. The index of Chinese companies plunged 6.3% to 9,203.
It’s not clear just how far China stocks will sink. The Hang Seng should find support at 18,000, according to Jackson Wong, investment manager at Tanrich Securities. That figure represents a market PE of 9X and retraces half of the major run from the March 2009 low to the high of November 2010, Wong told Equities in an email.
“…(B)ut no one wants to catch a falling knife at this point and everyone is waiting for the signal/catalyst/rally to get back in for a short term trade,” Wong said.
If the Index doesn’t bounce back above 18,000 on Friday, it will have to find a new bottom.
For now it looks like cement producers Anhui Conch (AHCH) and CNBM (CBUMY) will survive the market sell-off relatively well, Wong said. They have already been heavily sold, and recent news indicates that cement prices have bottomed in September. End
DAILY FIX == Blue Chips Hit Two-year Low
Hong Kong Blue Chips: -912, -4.8%, to 17,912, 09-22-11, Hang Seng Index
Chinese Stocks in Hong Kong: -620, -6.3% to 9,203, 09-22-11, HSCE Index
Shanghai Stocks: -2.8%, 2,443, 09-22-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -13.3 to 369.7. 09-21-2011, Bank of New York Mellon, ADR Index-China
Insight: The Federal Reserve Board's pessimistic assessment of the U.S. economy drove Hong Kong blue-chip stocks to a two-year low in heavy turnover. Chinese banks and properties tumbled. After authorities revised taxes on oil and gas production, Petrochina (NYSE SNP; 857 in Hong Kong) fell 3.7%. KGI Research
Quotable: "Since U.S. stock market fell sharply after the FOMC meeting last night, together with the strengthening US dollar, it would hurt the HK stock market. Since local blue chips dropped further in US ADR market, we expect the Hang Seng Index to test its new year low today." KGI Asia. 9-22-2011
Chinese Company to Watch: Kunlun Energy (KCYCY) "Given our bullish outlook on LNG business, we maintain our 2012 EPS forecast at HK$0.95. We reiterate our BUY rating on Kunlun Energy but revised our 6-month target price to $14.25 based on a more conservative 15x 2012 PER." Guoco Capital. 9-21-2011
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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
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