China stocks rebounded in thin trading Tuesday, but with just one trading day left this week most investors will probably take a break.
The Hang Seng Index in Hong Kong rose 1.3% to 20,791, and the index of Chinese companies climbed 1.9% to 10,859. The Hong Kong and Mainland markets will close for a holiday Wednesday, and Hong Kong will also take Friday off.
“There’s only two trading days this week including today (Tuesday) and people will stay on the sidelines,” said Steven Leung, director of institutional sales for UOB Kay Hian Holdings. “They are waiting for Chinese economic figures, especially CPI numbers, coming next week.”
Leung told Equities he is not worried about a sharp Chinese economic downturn or hard landing. He noted the Chinese government appears to be in no hurry to launch monetary loosening to stimulate the economy, which indicates authorities are confident there will be no hard landing.
There will likely be a cut in banks’ required reserve ratio in the second quarter, according to Leung. But it is not so clear when China will lower interest rates. It may be in the second half of the year.
Meanwhile, Leung said, uncertainty in the global economy will steer investors to defensive plays.
Chinese banks are primary targets, partly because of their healthy dividend yields. “Even the big banks have good dividends – ICBC (FXI) pays close to 5 percent,” Leung said.
He also said that since China is not pushing overall monetary loosening, authorities will focus on expanding the consumer sector. Leung likes footwear and apparel company Daphne (DPNEY) and footwear and sportswear maker Belle International (BELLY). End
Hong Kong Blue Chips: +269, +1.3%, to 20,791, 04-03-12, Hang Seng Index
Chinese Stocks in Hong Kong: +201, +1.9%, to 10,859, 04-03-12, HSCE Index
Shanghai Stocks: +0.5% to 2,263, 04-02-12, Closed for a holiday April 2 - 4.Shanghai Composite Index.
Chinese Stocks in the U.S.: +3.0, 404.8, 04-02-12, Bank of New York Mellon, ADR Index-China
Insight: Good economic news and rising stocks in the U.S. triggered a rally in Hong Kong that pushed blue chips above their 10-day moving average. Turnover increased 2.0% but was still thin. Mainland properties jumped 6-10% on encouraging operating data. KGI Research
Quotable: "The positive is that the 50 day MA is still well above the 250 day MA, suggesting the medium uptrend is still not under threat." Core Pacific Yamaichi. 4-3-12
Chinese Company to Watch: "In 2011, ZHAOJIN MINING (ZHAOF) achieved a net profit of RMB1.66bn, up 38.3%, due to a substantial increase in the output quantity and selling price of gold." Kingston Financial. 4-3-12
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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
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