China stocks regained their footing late this week, but further gains may be had to come by.
On Friday Hong Kong’s Hang Seng Index rose 0.5% to 22,030 in heavier trading, and the index of Chinese stocks climbed 1.3% to 10,623. Following a 3.6% surge in both indexes last week, plunging A-shares on China markets led to a retreat early this week. But solid gains Thursday and Friday allowed the Hang Seng to rise 0.5% this week while the index of Chinese companies inched up 0.2%.
The late-week turnaround was supported by the inflow of foreign funds resulting from loose monetary policies in the U.S. and Europe, said Ben Kwong, chief operating officer at KGI Asia.
“However, we are relatively skeptical on the room of further upside in very short term (say coming week),” he told Equities in an email.
He pointed out that A-shares are still weak, with the Shanghai Composite Index languishing below the important 2,000 level at 1,980. This weakness is a drag on Chinese companies sold in Hong Kong, the H shares. Many big Chinese companies list in both the Mainland and Hong Kong, and overall A-shares are selling at a 5% discount to Hong Kong H shares of the same companies. For major banks and materials plays the discount for A-shares is 8 to 20%, Kwong said.
In addition, a number of Hong Kong-listed companies plan to place shares on the market, draining liquidity, he said.
“Therefore, we think the market might have to consolidate at 22,000 in the near term before the anticipated window dressing activities to boost the market further upward in the year end,” Kwong said.
Chinese properties remain strong, he said, but buying interest is shifting to second- and third-liners. End
Hong Kong Blue Chips: +108, +0.5, to 22,030, 11-30-12, Hang Seng Index
Chinese Stocks in Hong Kong: +135, +1.3%, to 10,623, 11-30-12, HSCE Index
Shanghai Stocks: +17, +0.8% to 1,980, 11-30-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +2.4, 377.9, 11-29-12, Bank of New York Mellon, ADR Index-China – closed by storm
Insight: Hong Kong managed to recover losses from early in the week. Moody’s rated Chinese Properties as “stable,” sparking gains in the sector: R & F (GZUHY) +7.5%. KGI Research
Quotable: “The first resistance would be 22,000, while next resistance would be seen at year’s high of 22,150. For support, the first support would be 20DMA (21,623), while next support would be seen at 50DMA (21,329).” KGI Asia. 11-30-12
Chinese Company to Watch: “China Gas (HOKCY) sales beat peers, there is upside potential with its low penetration rate. Besides, the group planning to acquire gas stations in future, this may help to boost profit.” KGI Asia. 11-29-12
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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