China stocks in Hong Kong ended the first half of 2011 on Thursday with a surge in prices and turnover. But there’s no disguising that the first six months of the year was crummy.
Ahead of Friday’s holiday in Hong Kong, the big gains Thursday allowed the blue-chip Hang Seng Index to gain 1.0% for the week, up 226 points to 22,398. The index of Chinese companies rose 1.1%, 140 points, to 12,577. But for the year so far the Hang Seng, which includes numerous big China stocks, sank 2.8%, 637 points.
It all started well enough. The Hang Seng rode an inflow of foreign funds to rise 6.2% to the year-high of 24,468 on April 8. But then rising inflation and slowing growth in China pushed stocks lower. A weakening U.S. economy and worsening European debt crisis accelerated the drop. Blue chips plunged 11.7% to the year-low of 21,600 on June 20.
But when the Hang Seng approached 21,500 investors seemed to remember that valuations were at a very attractive level by historical standards. Since then big gains yesterday and last Friday have helped stocks bounce a bit higher.
The second half of 2011 looks much more promising. Analysts expect Chinese inflation to come down and economic tightening to ease. The main question seems to be not if, but when.
With inflation expected to peak in June, the first clear sign of a decline in July won’t appear on paper until figures are announced in August, at the earliest. But Chinese government officials or institutions may give market-moving signals before then. It was a proclamation by Premier Wen Jiabao that inflation would be controlled in 2011 that sparked the brief surge last Friday. End
DAILY FIX – Optimism on Greek Debt Sparks Rally
Hong Kong Blue Chips: +337, +1.5%, to 22,398, 06-30-11, Hang Seng Index
Chinese Stocks in Hong Kong: +172, +1.4% to 12,577, 06-30-11, HSCE Index
Shanghai Stocks: +1.2%, 2,762, 06-30-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +0.6 to 433.3, 06-29-11, Bank of New York Mellon, ADR Index-China
Insight: Optimism about a solution to the Greek debt crisis and end-of-quarter window dressing sparked a rally. KGI Research
Quotable: “Stocks which are oversold including ICBC (1398:HK) and CCB (0939 HK) may stabilize or even rebound under the bargain hunting activities. We expect that HSI will be range bounce at the range from 21,800 to 22,700 in short-term.” Core Pacifc Yamaichi. 6-30-2011
Chinese Companies to Watch: “Our top picks (for the second half of 2011) are Jiangxi Copper (JIXAY), CNOOC Ltd. (CEO), Yanzhou Coal (YZC), PingAn, MSB, China Lonking, Le Saunda, Tencent (TCEHY), Anxin-China (BITLF) and TC Interconnect.” BOCOM Interatioal. 6-30-2011
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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