It could have been worse. Chinese inflation and other economic data released Tuesday was generally within expectations, a little higher here, a little lower there. After fear of rising inflation and slowing growth put the market in a tailspin the last two weeks, China stocks in Hong Kong bounced higher minutes after release of the unexciting data.
The much anticipated consumer price inflation figure for May was 5.5%, up from 5.3% in April as expected. The producer price index gained slightly more than predicted, 6.8%. “This reflects that future inflation pressure will remain high,” Ben Kwong, chief operating officer of KGI Asia, told Equities.
Measures of Chinese economic growth were mixed, he said. Retail sales growth was a bit lower than expected; fixed asset investment and industrial production were somewhat higher.
“You look at the data along with macro-economic statistics released yesterday like new loan growth and money supply, and signs are the economy is not slowing very significantly,” Kwong said. “That will be treated as quite positive.
“If you curb inflation you need to tighten economic policy. If you slow growth too much there’s significant concern there will be a hard landing. But the data does not point to a hard landing.”
However, the rising inflation figures signal China will tighten the economic screws further, probably raising interest rates and bank reserve requirements again. Kwong and other analysts think inflation will peak at about 6.0% this month before retreating gradually.
With higher inflation in the offing and the U.S. economy still unsettled, Kwong sees little hope of a significant short-term rebound. And in fact on Tuesday Hong Kong blue chips could not hang onto gains posted right after the release of economic data. A shares in China and the index of Chinese companies in Hong Kong did, however, end higher.
The strong fixed asset investment growth helped cement and construction plays. Cement producer Anhui Conch (0914 in Hong Kong) surged 5.8%. Statistics also did not show any significant slowdown in property development, and some Chinese property plays like R & F (2777) rose 4-5%. End
DAILY FIX - Chna Plays Helped by Economic Data
Hong Kong Blue Chips: -12, =0.05%, to 22,496, 06-14-11, Hang Seng Index
Chinese Stocks in Hong Kong: +55, +0.5% to 12,488, 06-14-11, HSCE Index
Shanghai Stocks: +1.1%, 2,730, 06-14-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -0.4 to 416.7, 06-13-11, Bank of New York Mellon, ADR Index-China
Insight: Chinese stocks in Hong Kong and on Mainland exchanges rose after inflation and other economic figures came in as expected Tuesday, but Hong Kong blue chips could not hold onto gains. The statistics boosted cement and construction plays and also helped Chinese property developers. KGI Research
Quotable: "Market View – Whether the technical rebound could persist depends on the economic data to be released today." BOCOM International. 6-14-2011
Chinese Company to Watch: "Johnson Electric (179) retreated 7% since June 1, thus offering a good buying opportunity." Guoco Capital. 6-14-2011
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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
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