China Stocks Rebound but Breakthrough Elusive

Gene Linn |

China Stocks Rebound but Breakthrough ElusiveChina stocks bounced back Thursday but they may already be bumping into a ceiling.

Hong Kong’s Hang Seng Index climbed 1.2% to 20,132 after a decline Wednesday tested support levels. The index of Chinese companies rose 1.4% to 9,836. Turnover increased but was still thin. Since rising 1,352 points from July 25 to August 9, the Hang Seng has repeatedly slipped back from the 20,200 level.

Hopes for monetary loosening by the Federal Reserve Bank and the European Central Bank prop the market up, and a hint the Fed might launch a stimulus plan boosted Hong Kong Thursday.

But the market is running into formidable barriers. A big one is slowing Chinese economic growth, as evidenced by a weak preliminary PMI number announced Thursday.

Sagging Chinese corporate earnings are another sign of China’s economic struggles, according to Ben Kwong, chief operating officer at KGI Asia. He also pointed to investors’ “impatience” with the Chinese Central bank’s slow-motion moves toward economic stimulus and an ailing A-share market in Shanghai.

For the time being, Kwong told Equities in an email, he expects the Hang Seng to continue to trade in a narrow range, oscillating around 20,000.

A couple of sectors catch his interest, though.

“With the increased possibility of easing from Central banks, we expect commodity plays and commodity stocks to see more buying interest,” Kwong said. “Besides, as the Fed might keep (a) low rate for a long period, it will also (be) positive to HK property market , hence related HK property plays will also be boosted.” End

DAILY FIX

Hong Kong Blue Chips: +244, +1.2%, to 20,132, 08-23-12, Hang Seng Index

Chinese Stocks in Hong Kong: +137, +1.4%, to 9,836, 08-23-12, HSCE Index

Shanghai Stocks: +5, +0.2% to 2,113, 08-23-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -0.4, 367.9, 08-22-12, Bank of New York Mellon, ADR Index-China

Insight: Hints the U.S. central bank would launch monetary easing boosted Hong Kong, despite the release of China's lowest preliminary PMI number since November. Investors focused buying on second- and third-tier stocks. Handbag and fashion accessories retailer Milan Station (1150) shot up 55% on plans to develop the market in the large inland city of Chengdu. KGI Research

Quotable: "The first resistance would be 20,000, while next resistance would be seen at 20,300. For support, the first support would be 100DMA (19,696), while next support would be seen at 50DMA (19,527)." KGI Research. 8-23-12

Chinese Company to Watch: Insurer PICC (PPCCY) "PICC’s results bring positive surprise to the market,...We think the positive results may provide short-term momentum to the stock price." Tanrich Securities. 8-22-12

Brokerages and analysts cited here 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
PSMT PriceSmart Inc. 90.85 0.70 0.78 95,699

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