China Stocks Rebound but Economy Still a Drag

In an up-and-down week for China stocks it was Thursday’s turn to be up. But one analyst says the downside isn’t far away.

The Hang Seng Index in Hong Kong rose 1.7% to 19,559 in slightly higher turnover, and the index of Chinese companies climbed 2.4% to 9,515.

Encouraging news and a stock market rise in the U.S. helped the Hang Seng rebound from Wednesday’s decline. So did a speed-up in stimulus spending for China’s rail system.

But the boost from these factors will likely be temporary, according to Francis Lun, managing director at Lycean Securities. He noted that a substantial rally Tuesday turned south when a rebound in China’s property market ended hopes of an imminent loosening of Chinese monetary policy. Such an easing of policy is seen as a key to help China’s struggling economy.

While an increase in stimulus limited to sectors like rail construction is nice, it won’t soon end the decline in China’s economic growth. What’s more, Lun told Equities, good news from the U.S. won’t counteract the bad economic news from China.

“So the rebound is only a technical rebound and won’t last long,” he said.

The main gainers in this technical rebound will probably be Chinese financials, which have been beaten down in the last week. End

DAILY FIX

Hong Kong Blue Chips: +319, +1.7%, to 19,559, 07-18-12, Hang Seng Index

Chinese Stocks in Hong Kong: +222, +2.4%, to 9,515, 07-18-12, HSCE Index

Shanghai Stocks: +16, +0.7% to 2,185, 07-18-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -1.4, 360.3, 07-18-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong rebounded to open higher after a rise on Wall Street and continued to climb in slightly higher turnover. Accelerated stimulus spending in China’s railways helped China Rail Construction (CWYCY) rise 4.6%. An increase in global oil prices helped Chinese producers: PetroChina (PTR) +2%. KGI Research

Quotable: “Given the uncertain market sentiment, we suggest investors to wait for better entry opportunity.” KGI Research. 7-19-12

Chinese Company to Watch: “Samsonite International (1910, HK) said yesterday it will buy High Sierra Sport Company, a renowned maker of casual bags,… Currently, the market size of casual bags in Asian is about two times bigger than luggage market.” KGI Research. 7-19-12

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