Damage from the impasse over raising the U.S. debt ceiling reached China stocks in Hong Kong on Thursday, but in diluted form. By the end of the day, optimism over corporate results due in August overcame U.S. worries and a drop in Mainland Chinese markets to allow Hong Kong blue chips to post a slight gain.
“We still think the U.S. government will settle the debt ceiling problem,” said Eric Yuen, head of research at Guoco Capital. “Upcoming corporate results will be the key. Next week big companies like HSBC, (conglomerate) Hutchison and (property developer) Cheung Kong will announce interim results.”
Chinese Companies to Join Rally
Although local Hong Kong conglomerates and property developers led Thursday’s market, Yuen sees hope for Chinese companies in the current results-driven rally.
A benchmark for Chinese company gains, he said, was the recent announcement that state-owned enterprises (SOEs) have posted an average 15% rise in the previous year. A number of Chinese companies should easily beat that figure, potentially boosting their stock.
Look to Banks, Retailers
Among those companies are Mainland banks. Yuen noted that the Agricultural Bank of China recently said first half 2011 profits jumped 45% year-on-year. Another promising sector is retailing. Chinese hypermart operator Sunart Retail’s stock soared 41% over its IPO price on its first day of trading Wednesday. Yuen said recently listed foreign retailers with a significant China presence, namely Prada and Samsonite, are trading at their highest levels. “This indicates overseas investors will chase luxury brands because of the high growth potential in China,” he said.
DAILY FIX -- Hutchison leads rebound
Hong Kong Blue Chips: +29, +0.1%, to 22,571, 07-28-11, Hang Seng Index
Chinese Stocks in Hong Kong: -70, -0.6% to 12,518, 07-28-11, HSCE Index
Shanghai Stocks: -0.5%, 2,709, 07-28-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -6.3 to 440.3, 07-27-11, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips fell sharply in early trading but rebounded when they found support at 20-day and 50-day moving averages. Local heavyweight conglomerate Hutchison (0013) led the market with a 3% rise. Chinese cement producers dropped as cement prices fell: Anhui (914) -2.9%. KGI Research
Quotable: "HK market could see strong pressure in the short term on the surface of negative news from external markets." BOCOM International. 7-27-2011
Chinese Company to Watch: "Great Wall Motor (2333) significantly outperformed the whole auto sector with sales growth 44 ppts higher than the average. We expect the company to maintain its niche market leader position, as it will launch two new models in 2H11...." Haitong Securities. 7-26-2011
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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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