China Stocks Rally Fades

Gene Linn  |

Another short, sharp rally in China stocks in Hong Kong apparently petered out on Tuesday. Investors can expect to continue to run into a fairly low ceiling for a month or two, according to Ben Kwong, chief operating officer at KGI Asia.

Hong Kong’s blue-chip Hang Seng Index soared more than 700 points, over 3%, in the previous two trading days on the way to packing on 1,170 points, 5.4%, since hitting the year-low of 21,600 on June 20. But on Tuesday the market ran out of steam when it hit resistance as it neared 23,000, Kwong told Equities.

“Now we’re struggling at the 250-day moving average, the usual divide between bulls and bears,” he said. The tussle will probably go on for awhile. “It’s like last year when we struggled at the 250-day moving average from April to September,” Kwong said.

Last year it was uncertainty over the European debt crisis that restrained trading. Now, Kwong said, investors are wondering when overseas funds will start flowing back to the Hong Kong market.

The stage is set for funds to flow to Hong Kong and China, according to Kwong. The U.S. Federal Reserve’s easy money policy has pushed funds into the U.S. market, but that policy ended in June. China stocks will begin to attract those funds after China’s inflation peaks and its economic tightening eases.

That most likely will happen in the last quarter of the year, Kwong said. Meanwhile, investors are quickly switching in and out of different stocks sectors as the Chinese government announces policies to aid one industry or another. For example, car makers and construction materials stocks have been hot recently.

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Currently Kwong likes consumption stocks such as retailers, especially department stores focusing on high-end products.  End


Hong Kong Blue Chips: -23, -0.1%, to 22,748, 07-05-11, Hang Seng Index

Chinese Stocks in Hong Kong: -31, -0.2% to 12,842, 07-05-11, HSCE Index

Shanghai Stocks: +0.1%, 2,816, 07-05-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +5.1 to 444.2, 07-01-11, Bank of New York Mellon, ADR Index-China

Insight: With the U.S. market closed for a holiday, Hong Kong traded in a narrow range in weak volume. Chinese properties rose. Shimao (813) gained 4.9% after reporting strong sales. Solar energy plays like Comtec (712) rose, but Chinese banks were soft. KGI Research

Quotable: "Market View – All the bad news seems to be out, we expect the Hong Kong market to perform better in July." BOCOM International. 7-4-2011

Chinese Companies to Watch: "The inauguration of the long-awaited Beijing-Shanghai high-speed railway and volatile fuel prices have propelled the aviation sector into the headlines recently. Our analysis and comments: The Beijing-Shanghai high-speed line, with a total length of about 1,320 km, commenced operation on 30 June. While it is hard to gauge the exact diversion impact from the new service, the overall effect on Air China (0753.HK, $8.06, BUY) and  China Eastern Airlines (0670.HK, $3.46, HOLD), with their home bases respectively situated in Beijing and Shanghai, should be immaterial given that direct flights between the two destinations account for less than 10% of their business mix." Haitong Securties. 7-5-2011

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For a list of Chinese companies sold in the U.S. and information on each company go to

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