China Stocks Pullback Only Temporary -- Analyst

Gene Linn |

Shanghai stock exchangeBad news helped stall this week’s China stocks rally on Wednesday, but one analyst says the downturn is only temporary.

A lowering of Hong Kong’s economic prospects by several brokerages and a big decline on Chinese markets weighed on stocks in Hong Kong Wednesday, according to KGI Research. S & P’s downgrade of major global banks also hurt.

As a result the Hang Seng Index fell 1.5% to 17,989 after a two-day rebound had pushed it above 18,000. The index of Chinese companies sank 2.1% to 9,509. Turnover posted a strong rise.

But Castor Pang, head of research at Core Pacific Yamaichi, said it was expected that there would be a pullback after gains Monday and Tuesday. On the positive side, he said that investors are more optimistic than one or two weeks ago that Europe will find a solution to its debt crisis.

“In the short term, momentum is still there for the market to rise,” he told Equities.

Any rally will find tough resistance at 18,400, according to Pang. It will take real progress toward a solution on European debt and more stable U.S. economic growth to punch through that level, he said. And after that there would be powerful resistance at 18,900.
“We don’t believe the Hang Seng will trade above 19,000 this year,” he said.

Leading the modest year-end rally would be Chinese property stocks. Some investors think the battered sector has seen the bottom, Pang said, and Chinese authorities will loosen tight controls on property purchases. He doesn’t think controls will be dropped until next year, but said Chinese properties’ valuations are now attractive.

He particularly likes China Overseas (CAOVY) and China Resources Land (CRBJY). End

DAILY FIX

Hong Kong Blue Chips: -267, -1.5%, to 17,989, 11-30-11, Hang Seng Index

Chinese Stocks in Hong Kong: -205, -2.1% to 9,509, 11-30-11, HSCE Index

Shanghai Stocks: -3.3%, 2,333, 11-30-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -4.0, to 365.4, 11-29-11, Bank of New York Mellon, ADR Index-China

Insight: Several brokerages lowered predictions for Hong Kong economic growth, and Mainland markets posted sharp declines to help drive Hong Kong stocks lower after a two-day rally. Turnover posted a strong rise. The Mainland stocks decline hurt Chinese insurers and properties. China Life (LFC) fell 3.5%, and Ping An Insurance (PNGAY) sank 5.3%. Two stocks dropped from the MSCI suffered steep losses: property developer Greentown China (3900.HK) fell 10.9%, and Li Ning (LNNGY) plunged 7.2%. KGI Research

Quotable: "The total short-selling turnover increased 60% to HK$4.94bn (on 11-29-11). The short-selling turnover ratio for the market rebounded back to 8.9% to show that investors had become cautious when market seesawed at the level when HSI approach to 18,400." Core Pacific Yamaichi. 11-30-11.

Chinese Company to Watch: "Given China’s volatile property market, the uncertain outlook for China and wildly fluctuating sentiment linked to the drama surrounding the debt crisis in Europe, we recommend a stock picking strategy aimed at maximizing returns and minimizing risk. With this in mind, we reiterate our positive view on CR Land (1109.HK),..." CCB International. 11-28-11

Brokerages and analysts cited have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don't endorse them.

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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
LFC China Life Insurance Company Limited American Depo 13.47 -0.28 -2.04 782,547

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