China Stocks Poised for A Rally

Gene Linn  |

China stocks retreated Wednesday after rebounding the previous day, but one analyst thinks more sustained rally is coming.

The Hang Seng Index in Hong Kong dropped 0.8% in sluggish turnover to 20,885, and the index of Chinese companies sank 1.0% to 10,701.

But better times are at hand, according to Francis Lun, managing director of Lycean Securities. “I think we are poised to reach 22,000 maybe this week or in April,” he told Equities.

The rally will be led by Chinese companies listed in Hong Kong – so-called H shares. These companies and the Hong Kong market as a whole suffered recently due to worries over falling Chinese economic growth.

First on March 15 news that China would continue to squeeze the property market snuffed out a promising rally. Then on March 22 a disappointed drop in China’s preliminary PMI for March manufacturing helped make last week the worst since November for the Hang Seng.

But Lun is not deterred. “I think the fear about a slowdown in China is overblown,” he said. Easing worries about the Chinese economy and an improved outlook for the U.S. economy will boost the Hong Kong market, according to Lun.

Among the sectors fueling a possible upturn is coal, he said, because the price of coal is set to rise. Winners include Shenhua (CSUAY) and China Coal (CCOZY). Lun also likes Sands China (SCHYY) and other Macau gambling plays because they continue to post impressive gains. End


Hong Kong Blue Chips: -161, -0.8%, to 20,885, 03-28-12, Hang Seng Index

Chinese Stocks in Hong Kong: -110, -1.0%, to 10,701, 03-28-12, HSCE Index

Shanghai Stocks: -2.6% to 2,285, 03-28-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -1.1, 408.4, 03-26-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong lost ground in tepid turnover amid short selling after Chinese stocks listed in the U.S. fell overnight. Chinese private companies were hit hard again: Gome (GMELY) reported lower-than-expected profits and lost 21.2%. KGI Research

Quotable: "HSI extended technical rebound from Monday’s trough and that helped HSI to rebound back to 50-day MA (20,859) and 250-day MA (20,760). Basically, it served as a signal for the improvement of market sentiment." Core PAcific Yamaichi. 3-28-12

Chinese Company to Watch: "Singamas (Container) (SNGSF) has seen orders after Chinese New Year and current orders have filled the capacity up to end-May (~2 months), which is higher than the normal ~1 month." Guoco Capital. 3-28-12

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