China Stocks Rally Slows -- Temporarily

Gene Linn |

ShanghaiThis week’s robust China stocks rally pulled back in Hong Kong Thursday afternoon, but one analyst said the upswing still has room to run.

The blue-chip Hang Seng Index broke through initial resistance after climbing almost 5% in the first three days of the week and then jumped a further 1.4% Thursday morning. But the Hang Seng ended only 0.2% higher at 20,585. The index of Chinese companies actually finished 0.2% lower after soaring almost 8% this week through Thursday morning.

But the pullback is probably temporary, caused by technical resistance and profit-taking as the Hang Seng approached 21,000, according to Tanrich Securities investment manager Jackson Wong. He told Equities in an email that China stocks are poised to move higher in the next two or three weeks.

‘Grace Period’ for Investors

“The bullishness comes from the ‘grace period’ (provided) by Bernanke's speech,” Wong said.

U.S. Federal Reserve Board Chairman Ben Bernanke in a speech last Friday left the door open to announcing new easy money policies at a Fed meeting on September 20. If U.S. economic statistics are good between now and September 20, the Fed probably won’t intervene, but if they are bad the Fed will come to the rescue with new measures to stimulate the economy.

Either way, Wong said, investors have a “grace period” of good sentiment, especially compared to the panic-filled days of early August.

After the current consolidation between 20,500 and 21,000, Wong sees a possible breakthrough to 21,800 next week or by September 20 – “if nothing major bad happens in Europe.”

Leaders will continue to be big cap plays like China banks, he said. Local Hong Kong retailers and Macau gambling counters also look attractive. End

DAILY FIX -- Rally Falters in Afternoon

Hong Kong Blue Chips: +50, +0.2%, to 20,585, 09-01-11, Hang Seng Index

Chinese Stocks in Hong Kong: -21, -0.2% to 10,923, 09-01-11, HSCE Index

Shanghai Stocks: -0.4%, 2,556, 09-01-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: +4.7 to 408.4, 08-31-2011, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips continued this weeks' surge Thursday morning but fell back in the afternoon after approaching strong technical resisitance. China's August Purchasing Maangers Index came in at 50.9, the first rise since March and another indication China will not suffer a hard economic landing from its fight against inflation. Aluminum producer Chalco (ACH) rose 3.1%. KGI Research

Quotable: "The first resistance would now move up to early August gap level of 21,018, while next resistance would be 50DMA (21,353). For support, the first support would be 20DMA (20,003), while next support would be seen at 10DMA (19,818)." KGI Asia. 8-31, 2011

Chinese Company to Watch: "DONGFENG GROUP (00489) Auto market Dongfeng motor profit slips 10% yoy on tax expenses increased and the supply of auto parts due to Japan’s earthquake. However, the group will launch some new models in coming 18 months, which should help to boost performance." KGI Asia. 8-31-2011

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
ACH Aluminum Corporation of China Limited American Dep 9.01 -0.18 -1.96 24,819
HMST HomeStreet Inc. 24.96 -0.22 -0.87 151,002

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