China stocks posted a rebound Thursday from a steep fall the first three days of the week, but further short-term gains are likely to be limited.
The Hang Seng Index in Hong Kong rose 1.3% to 20,901, and the index of Chinese companies jumped 1.8% to 11,168. However thinner turnover was a sign of weak momentum.
In addition to worry over Greece’s debt, the 4.4% plunge from Monday through Wednesday was due to weakening economic growth and stubbornly high inflation in China, said Dickie Wong, executive director of research at Kingston Securities.
However, speaking of the sluggish China growth, Wong told Equities, “In my opinion this is a good thing.”
He noted that overheated economic growth last year and previous years led to problems such as the high debt ratio of provincial governments. More moderate growth could be healthier, according to Wong.
For the short term he thinks Thursday’s gains represent a technical rebound that will soon hit strong resistance at 21,000.
One big winner has been Prada (LUXUO) and other high-end retailers listed in Hong Kong, Wong said, fueled by a rumor that China would implement a cut import taxes for luxury items.
In addition, hard-hit Chinese financials are stabilizing, he said. China Life (LFC) rebounded Thursday after a profit warning sent shares down earlier. Wong said the profit warning was not as significant as the recent plunge indicated.
He said China Life profits had been hurt by the poor investment environment in 2011, but 2012 should be better.
Banking giant ICBC (FXI) had dropped sharply because investors expect Goldman to sell some if its stake in the Chinese bank. But the market has factored that in, and ICBC rebounded Thursday. End
Hong Kong Blue Chips: +273, +1.3%, to 20,901, 03-08-12, Hang Seng Index
Chinese Stocks in Hong Kong: +192, +1.8%, to 11,168, 03-08-12, HSCE Index
Shanghai Stocks: +1.1% to 2,420, 03-08-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +3.5, 400.8, 03-07-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong opened higher in line with a rise on Wall Street and increased gains in late trading to rebound from recent steep losses. Blue chips closed slightly above the 250-day moving average. However, a drop in turnover indicated momentum was weak. News China may resume approval of nuclear power plants boosted nuclear energy plays: Donggang (1072, HK) +2.4%. And an announcement China would waive taxes on new energy cars helped auto makers. KGI Research
Quotable: ” The Agricultural Price Index … showed a broad-based decline in food prices (including pork price) in Feb over a month ago, while the agricultural prices tracked by the Ministry of Agriculture remained stable throughout the month. Combining the above information, we trim our Feb CPI forecast from 3.8% to 3.5%.” BOCOM International. 3-8-12
Chinese Company to watch: “Geely (GELYF): Strong growth in Emgrand series and expansion in exports exposure to drive up share price.”3-8-12
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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=CNrsday, Wong said. End