China Stocks Rebound While Strong Resistance Lies Ahead

Gene Linn |

China LightsChina stocks rebounded Tuesday, but the shadow of HSBC’s (HBC) disappointing results loom over the market.

The Hang Seng Index in Hong Kong rose 1.4% to 21,569 in weak turnover. The index of Chinese companies climbed 1.9% to 11,761.

The gains were due to technical factors, not a sign of things to come, according to Dickie Wong, executive director of research at Kingston Securities.

Bellwether HSBC announced profits in line with expectations after the market closed Monday, Wong said. But he told Equities that closely watched figures such as return on equity not only fell below market expectations but dropped below the bank’s internal targets.

The stock, which accounts for 15% of the Hang Seng Index, slumped 0.6%.

Not all news from the market has been bad. “Chinese banks, [local] Hang Seng Bank (HSNGY) and China Mobile (CHL) did well today,” Wong said.

Big Chinese banks like CCB (CICHY) and ICBC (FXI) suffered from a drop in lending for most of February. But Wong said that changed around February 24 after China cut banks’ reserve requirement ratio.

“I think lending will be stronger in March,” he said.

But he said HSBC’s subpar results will put a cap on the market as a whole: “There’s probably no news that could help the Hang Seng break through resistance of 21,800 for the next week or two.” End

DAILY FIX

Hong Kong Blue Chips: +351, +1.4%, to 21,569, 02-28-12, Hang Seng Index

Chinese Stocks in Hong Kong: +221, +1.9%, to 11,761, 02-28-12, HSCE Index

Shanghai Stocks: +0.2% to 2,452, 02-28-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +0.02, 414.2, 02-27-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips opened 85 points higher, and upward momentum carried the market to solid gains, although turnover was weak. Banking giant HSBC (HBC) fell 0.6% after announcing disappointing results. But Chinese Banks rose: ICBC FXI) +2.3%. The local Hang Seng Bank (HSNGY) gained 5.1% on strong earnings, and local properties gained: Cheung Kong (CHEUY) +3.3%. KGI Research

Quotable: " Short-selling pressure mainly focused on the financial sector. Increasing short-selling activities reflected that investors stayed cautious over the upcoming companies’ results announcements." Core Pacific Yamaichi. 2-28-12

Chinese Companies to watch: "With the increasing purchasing power in China, the department stores retailers MAOYE INT’L (0848.HK) and PARKSON GROUP (PKSGY) achieved 11% and 15.1% increase in net profit for 2011." Kingston Securities. 2-17-12

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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