The much-anticipated, and mostly dreaded, European leaders’ summit late this week surprisingly gave China stocks a big boost Friday as leaders unexpectedly unveiled a pro-growth plan to stimulate Europe’s struggling economy.
After opening slightly lower, the Hang Seng Index in Hong Kong rode the good news from Europe to a 2.2% gain, closing at 19,441. Turnover was light but significantly higher than earlier in the week. The index of Chinese companies soared 2.6% to 9,575. A-shares in Shanghai jumped 1.4% to 2,226.
The gains were encouraging from a technical standpoint. The Hang Seng found a bit of breathing room above the key 19,000 mark, and Shanghai rebounded after falling below the critical 2,200 level Thursday.
For the week, the Hang Seng gained 2.3%, 446 points, and the index of Chinese companies rose 0.1%, 71 points.
Last week’s performance should make investors cautious about Friday’s strong performance.
Good news from Europe, election of pro-bailout parties in Greece, propelled the HSI to a one-month high of 19,519 on Wednesday, June 20. Then the U.S. Federal Reserve Board’s failure to announce new stimulus measures promptly triggered a two-day plunge.
Lesson: Volatility is still alive and well.
For now, Chinese banks and insurance companies are riding high. Giant bank ICBC (FXI) rose 2.6% Friday, and China Life (LFC) gained 3.3%.
For a longer-term view of China Stocks from Hong Kong’s Dr. Gloom, see this column next Monday.
Hong Kong Blue Chips: +416, +2.2%, to 19,441, 06-29-12, Hang Seng Index
Chinese Stocks in Hong Kong: +238, +2.6%, to 9,575, 06-29-12, HSCE Index
Shanghai Stocks: +30, +1.4% to 2,226, 06-29-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: -2.9, 357.0, 06-28-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong stocks opened lower but turned sharply higher on news that European leaders would launch a stimulus plan for the region’s sagging economy. Half-year window dressing also helped blue chips gain breathing space above the key 19,000 level. KGI Research
Quotable: “Since 20-day MA (19,000 for the HSI) was very important and should not be broken, if HSI failed to maintain above that level, HSI would pull back to 18,000.” Core Pacific Yamaichi. 6-29-12
Chinese Company to Watch: “Sinopec (0386.HK) – Refining Business Improves, “Accumulate” rating maintained.” Phillip Securites. 6-29-12
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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=CN