As usual, bad news about European debt was the major culprit in Friday’s slump, as the Fitch rating agency downgraded Portugal’s debt to junk status. Contributing to the decline this week was worry about global economic growth. China added to that worry because its preliminary November manufacturing PMI dropped sharply.
The Hang Seng Index closed the week down 4.3%, 802 points, to 17,689. The index of Chinese stocks fell 5.6%, 561 points, to 9,396. Turnover was thin all week and slipped to rock-bottom levels on Friday. The Hang Seng has plunged 11.6% since October 28.
Next week investors may be in for a wild ride, according to Conita Hung, head of equities at Delta Asia Financial. That is primarily because futures contracts expire in Hong Kong on Tuesday.
At this time it’s difficult to predict if the contract will close higher or lower, Hung told Equities. If it declines, the Hang Seng could test 17,300, she said. But if the Index stabilizes at 18,000, it could rebound to 18,600.
Raw materials, such as oil, and financial stocks would lead the rebound, Hung said. Among financials she likes Ping An Insurance (PNGAY) and big bank CCB (CICHY). CCB has strong liquidity and its high capital ratio will allow it to increase lending. End
Hong Kong Blue Chips: -246, -1.4%, to 17,689, 11-25-11, Hang Seng Index
Chinese Stocks in Hong Kong: -170, -1.8% to 9,396, 11-25-11, HSCE Index
Shanghai Stocks: -0.7%, 2,380, 11-25-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -10.3, to 357.2, 11-23-11, Bank of New York Mellon, ADR Index-China
Insight: More bad news from Europe drove Hong Kong stocks lower as the Fitch rating agency downgraded Portugal’s debt to junk status. Extremely thin turnover set the stage for volatility on Friday. On-line busiess-to-business firm Alibaba (ALBIY) fell 10.6% after third quarter earnings retreated. Consumer electronics maker Skyworth (SWDHY) sank 10.5% on a disappointing earnings report. KGI Research
Quotable: “Any directional changes will be led by Chinese policies, such as a cut in RRR, or the movement of European bond yields.” BOCOM International. 11-25-11
Chinese Company to Watch: China Resources Enterprises (CRHKY) “The company has an extensive retail network comprising more than 3,800 stores across the country as of end-3Q11; it also adopts a national expansion strategy which features regional dominance and synergy on multi-format business platforms that include hypermarkets, supermarkets, convenience stores and specialty stores, etc.” Haitong Securities. 11-25-11
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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