China Stocks Rebound Modestly but Euro-Gloom Persists

Gene Linn |

Hong Kong stocks rally comes to an endChina stocks in Hong Kong rebounded slightly Tuesday after sharp losses, but Euro-Gloom hangs heavy over the market, with blue chips stuck below the key 19,000 level and possibly headed to 18,000.

The Hang Seng Index in Hong Kong rose 0.4% to 18,982, and the index of Chinese companies gained 0.4% to 9,398. Turnover remained slim.

“The European crisis affects markets worldwide,” said Francis Lun, managing director at Lycean Securities. “It’s a never-ending drama that will continue for the rest of the year. There’s no hope for equities.”

Lun told Equities the Hang Seng Index appears to be headed below 18,000.

Exacerbating damage from the European debacle is the swoon of A-share stocks on Mainland markets. Stocks in Shanghai edged closer to the critical 2,200 mark on Tuesday, finishing 0.1% lower at 2,222. A dip below 2,200 would be “catastrophic,” according to Lun.

He sees one sliver of sunlight for stocks in Hong Kong. Chinese President Hu Jintao will visit Hong Kong next week to help celebrate the 15th anniversary of handover of sovereignty to China.

“He is expected to deliver policies to help the Hong Kong,” Lun said, “boosting Hong Kong as an RMB off-shore center, increasing the QFII program to allow investment in Chinese stocks and implementing an ETF for the Hang Seng Index for Chinese investors.”

(The Qualified Foreign Institutional Investors program is the channel for investment in A-shares, which otherwise are limited to Mainland investors.)

But this boost will not “jump start” the Hong Kong market, according to Lun.

China’s big four banks – ICBC (FXI), CCB (CICHY), BOC (BACHY) and ABC (ACGBY) – will be the main casualties, he said, partly because of their sheer size. In addition, China is looking at reforms in the banking sector that will increase competition, which will crimp profits. End

DAILY FIX

Hong Kong Blue Chips: +84, +0.4%, to 18,982, 06-26-12, Hang Seng Index

Chinese Stocks in Hong Kong: +34, +0.4%, to 9,398, 06-26-12, HSCE Index

Shanghai Stocks: -2, -0.1% to 2,222, 06-26-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: n/a, 358.4, 06-26-12, Bank of New York Mellon, ADR Index-China

Insight: The Hong Kong market extended its losing ways in the morning, but rebounded in the afternoon to end with a modest gain on thin turnover. China shipping plays did well: Cosco Pacific (CSPKY) +3.3%. KGI Research

Quotable: "Given the possibility of deferred changes in the economic cycle, we recommend investors to avoid holding strong cyclical stocks and accumulate the more conservative utilities and technology shares." BOCOM International. 6-26-12

Chinese Company to Watch: "We view Trinity (891, HK) as a unique high-to-luxury end menswear play in the Greater China market, differentiating itself from HK-listed and international peers." BOCOM International. 6-26-12

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

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Symbol Name Price Change % Volume
DYN.WS Dynegy Inc. Warrant expiring October 2 2017 0.15 0.00 0.00 212

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