China stocks pulled back Wednesday, consolidating from a strong three-week rally and hit by bad news from Mainland stocks. However, gains may not be over because the motor behind the recent rise is still purring.
The Hang Seng Index in Hong Kong sank 1.2%, though it remained above the important 20,000 level at 20,052. Turnover retreated, signaling a lack of momentum. The Hang Seng had shot up 7.5% since July 25 before dipping Wednesday. The index of Chinese companies fell 1.4% to 9,779.
A 1.1% drop in Shanghai’s A-shares added weight to the consolidation.
But a rebound may be in the offing, according to Francis Lun, managing director at Lycean Securities.
“I think the next move will be up,” he told Equities. “Investors are still expecting the ECB, the Fed and China to ease monetary policy.” It has been hope for central bank stimulus measures that have pushed the market higher in recent weeks. Lun said the Hang Seng could rebound to 20,500 in the short run.
For the longer term, recent and expected monetary easing in China and a show of resilience in the U.S. job market and retail sector may boost global economy as 2012 winds down.
If economic activity picks up, Lun said, copper and aluminum production will rise. For that reason he likes Jiangxi Copper (JIXYY) and aluminum producer Chalco (ACH). End
Hong Kong Blue Chips: -239, -1.2%, to 20,052, 08-15-12, Hang Seng Index
Chinese Stocks in Hong Kong: -136, -1.4%, to 9,779, 08-15-12, HSCE Index
Shanghai Stocks: -24, -1.1% to 2,119, 08-15-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +1.8, 383.4, 08-14-12, Bank of New York Mellon, ADR Index-China
Insight:Hong Kong opened lower after recent strong gains and continued to fall when stocks weakened on Mainland markets. Turnover retreated as momentum slumped. ICBC (FXI) sank 1.1% on news the Chinese social security fund was cutting its holding of the bank. Great Wall Motors (GWLLY) dived 5.1% due to a recall of vehicles in Australia. KGI Research
Quotable: "A range trade pattern will likely persist." BOCOM International. 8-15-12
Chinese Company to Watch: Information technology commpany DIGITAL CHINA (STV) "Its digital city business will benefit from mainland speed up the urbanization, it will be the earnings driver. Prospective P/E of 9x, valuation is attractive." KGI Asia.8-13-12
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