China Stocks' Rebound Is Modest, Likely Temporary

Gene Linn |

China Stocks' Rebound Is Modest, Likely TemporaryChina stocks staged a modest rebound Thursday, but there may be more losses ahead.

Hong Kong’s Hang Seng Index edged up 0.3% to 19,209, and the index of Chinese companies rose 0.5% to 9,069. Continued low turnover showed investors are still on the sidelines.

The Hang Seng has dropped more than 1,000 points from a high of 20,292 it reached on August 14 after its most recent rally. The main culprits are profit-taking and the sluggish outlook of the Chinese economy, said Ben Kwong, chief operating officer of KGI Asia.

“In fact, (if) the central government does not take aggressive measures to boost the economy, it (will) further weaken investors’ confidence,” Kwong told Equities in an email.

The market may fall still more in the short term, he said, but since there has already been a major correction it should find support at 18,700. “Some bargain-hunting activities might emerge if the local market retreats further,” he said.

Risk averse investors will eye defensive plays in the very near term, according to Kwong, including utilities and high-dividend yield stocks. He also said railway infrastructure companies will pick up speed in the medium term because the government plans to invest more in the sector. End

DAILY FIX

Hong Kong Blue Chips: +64, +0.3%, to 19,209, 09-06-12, Hang Seng Index

Chinese Stocks in Hong Kong: +49, +0.5%, to 9,069, 09-06-12, HSCE Index

Shanghai Stocks: +14, +0.7% to 2,052, 09-06-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -3.4, 353.3, 09-05-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips opened slightly lower but managed a modest gain as cautious investors stayed on the sideline. The Chinese government announced it would speed up railway spending, boosting rail infrastructure stocks: CSR (CSRGY) +9%. Shipping stocks also rose: CSCL (2866, HK) +6%. KGI Research

Quotable: "We expect the market should stabilize and await for ECB meeting results." BOCOM International. 9-6-12

Chinese Company to Watch: "Hengan (HEGIY, skin care, food and snack maker) Reaffirm high-conviction BUY on the time-tested champion." BOCOM International. 9-6-12

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
MEG Media General Inc. 18.43 0.30 1.65 1,743,908

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