Overall, the retreat demonstrated the limited effects of government actions in the face of continuing worry over European debt and slowing Chinese economic growth.
The biggest hope that emerged last week was that over the weekend China would announce a cut in banks’ required reserve ratio to spur lending and help cushion a slowdown in economic growth. That didn’t happen, although most observers expect further RRR reductions and a start of interest rate cuts early next year.
On Friday the market bounced higher partly on rumors Central Huijin Investment, an arm of China’s sovereign wealth fund, would start buying shares in the big four state banks. That helped the Hang Seng Index in Hong Kong stage a brief rally, rising 1.4%.
But the Hang Seng fell back 1.2% Monday to 18,070, and the index of Chinese companies dropped 1.4% to 9,727. Pre-holiday volume was very weak.
BOCOM International asserted that any gains from reports of government investment in the banking sector would soon fade.
Bank stocks are in the “safe zone” the brokerage said in its Monday market commentary. But it said, “Huijin's stake buying can hardly reverse the trend, as the market is still governed by China's economy (and) policy and developments of the European debt crisis. There are no substantial improvements on all three fronts so far.” End
Hong Kong Blue Chips: -215, -1.2%, to 18,070, 12-19-11, Hang Seng Index
Chinese Stocks in Hong Kong: -140, -1.4% to 9,727, 12-19-11, HSCE Index
Shanghai Stocks: -0.3%, 2,218, 12-19-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +2.5, to 354.6, 12-16-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong retreated from Friday's gains on news of the death of North Korean leader Kim Jong Il and failure of China to cut banks' reserve ratios as expected. A drop on Mainland markets hurt Chinese insurers: China Life (LFC) -2.5%.
Quotable: "The local bourse staged a rebound on Friday, after the new China Securities Regulatory Commission (CSRC) chief Guo Shuqing talked up the market by suggesting pension and housing funds on the mainland to invest in equities for profits. However, the rebound is seen short-lived, as the European debt crisis – the key threat to global stock markets – is still in place. The HSI is expected to trade near 17,500-18,000 on thin volume before the Christmas holiday break."BEA Securities. 12-16-11
Chinese Company to Watch: China Resources Land (CRBJY) "As the Chinese government is likely to loosen credit in 2012 and property developers are currently pricing at record low valuation, we believe it is the right time to accumulate leading stocks such as China Overseas Land for long-term investment. Company has established strong brand name and execution capability allowing it to expand market share during the down cycle of the property market." Guoco Capital. 12-19-11
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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
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