China Stocks Retreat, Regroup

Gene Linn |

News flash: China stocks posted a large loss in heavy trading Tuesday. It’s worth underlining that event because it is rare these days.

As part of a 22.9% climb in 2012 and strong rally to start 2013, the Hang Seng Index in China gateway Hong Kong surged 21.9% from September 5 to last Friday. December saw a series of year-best closes and an occasional small decline.

But on Tuesday the Hang Seng sank 0.9% to 23,111, and the index of Chinese companies plunged 2.2% to 11,714.

Many analysts, though, expect the Hang Seng to continue its winning ways shortly, after a brief period of consolidation and profit-taking.

“I think the consolidation will last one week only,” said Steven Leung, director of institutional sales at UOB Kay Hian. “There are just too many institutional investors waiting to get into the market.”

The trigger for a jump-start for the rally might come from the Mainland’s A-shares, he told Equities. A recent sharp rise in the Shanghai Composite Index has added oomph to the China stocks rally In Hong Kong and abroad, but it has run into strong resistance at the 2,300 level. When Shanghai breaks through 2,300, Leung said, the Hang Seng will be on its way up again.

Another indication a rebound may be near is that the Hang Seng has dropped to close to its 10-day moving average, now 22,947. Tanrich Securities says that is a signal to momentum buyers to jump in.

Leung said he expects big China financials like banking giant ICBC (FXI) to lead the next big bounce upward. End

DAILY FIX

Hong Kong Blue Chips: -219, -0.9%, to 23,111, 1-8-13, Hang Seng Index

Chinese Stocks in Hong Kong: -259, -2.2%, to 11,714, 1-8-13, HSCE Index

Shanghai Stocks: -9, -0.4% to 2,276, 1-8-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: -5.5, 407.1, 1-7-13, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips opened 65 points lower and continued to fall in heavy trading. Profit-taking hit Chinese banks and properties: Minsheng Bank (CMAKY) -4.1%. Chinese insurers also fell: Ping An (PNGAY) dropped more than 4%. Research

Quotable: "We suggest short term investors to take profit on large-cap H shares and put investment focus on second liners for the rest of the month." Guoco Capital. 1-8-13

Chinese Company to Watch: "Sinoma (CASDY) provides cement-making equipment and engineering services.Company should benefit from the demand recovery of cement and continuous urbanization in China." Guoco Capital. 1-8-13

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

Companies

Symbol Name Price Change % Volume
RECN Resources Connection Inc. 14.70 -0.01 -0.07 25,189

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