China stocks’ hot three-day rally began to cool Wednesday morning in tandem with wavering hopes U.S. and European central banks would inject large amounts of money into their struggling economies. But upbeat news from China turned early losses into slight gains.
Hong Kong’s Hang Seng Index had soared 4.8% since last Thursday when the European Central Bank head began vowing to support the sagging Euro. But it traded 150 points lower Wednesday morning before closing with a 0.1% gain at 19,820. The index of Chinese companies rose 0.9% to 9,762.
The turnaround came when a meeting of Chinese leaders signaled China would put more stress on stabilizing its weakening economy.
There are more gains to come, according to Steven Leung, director of institutional sales at UOB Kay Hian Holdings. He told Equities he thinks the ECB will take firm action to prop up the Euro, helping the Hang Seng challenge the 20,000 resistance level in the short term.
“The rally is mostly short-covering, so we expect investors to buy heavyweight Chinese banks and insurance companies in the next few days,” he said.
But after the run at 20,000 the market may consolidate. “Investors are concerned about long-term growth in China, the U.S. and Europe,” Leung said.
The next consolidation will be a little higher than the last, he said, at about 19,200 to 20,000. End
Hong Kong Blue Chips: +24, +0.1%, to 19,820, 08-01-12, Hang Seng Index
Chinese Stocks in Hong Kong: +88, +0.9%, to 9,762, 08-01-12, HSCE Index
Shanghai Stocks: +20, +0.9.3% to 2,123, 08-01-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +1.7, 370.1, 07-31-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips fell 150 points in early trading following a strong three-day rally as hopes wavered that U.S. and European central banks would substantially loosen monetary policy. However the market rebounded after China signaled it would focus more on stabilizing its shaky economy. Chinese infrastructure and materials stocks rose sharply: cement-maker Anhui Conch (AHCHY) +4.4%. KGI Research
Quotable: “Market will be watching for the FOMC results due to release tonight.” BOCOM International. 8-1-12
Chinese Company to Watch: Regent Manner (1997, HK) “We believe RMIH should report better performance in both top line growth and gross margin in 2H12, mainly driven by iPad Mini for which RMIH is expected to supply LED light bars and panel control boards.” BOCOM International. 8-1-12
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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