American consumers and Greek banks gave China stocks room to run Tuesday and China plays in Hong Kong took full advantage. The Hang Seng Index climbed 1.7%, and the index of Chinese companies rose 2.2% after a jump in U.S. consumer spending in July and news two big Greek banks were merging.
Any good news from the U.S. or Europe is an invitation for investors to scoop up China stocks that are at near-historic lows after the sharp downturn in the last month. The “overreaction” in the bear market in early August is leading to short-term buying now, said Castor Pang, head of research at Core Pacific Yamaichi.
But bad news from overseas can stop a rally as easily as it starts one. Pang cautioned that overall the market is still in a correction. “There is still pressure from the U.S. and European debt crises,” he said.
For now, he said, Chinese telecoms and banks are helping lead the market higher. “The telecoms subscription rate has hit bottom, and can rise in the short term,” according to Pang.
Chinese banks actually got some bad news Tuesday after the media reported that China’s central bank plans to include margin deposits of commercial banks in their reserves at the central bank. This will equal two hikes in banks’ required reserve ratio in the next four months, according to BOCOM International. RRR raises have been a regular tool in China’s fight against inflation.
Pang said the tightening move would limit loan growth in small banks, but would not affect big banks very much. “With low valuations for Chinese banks,” he said, “investors seem to be willing to buy for the short term.” End
DAILY FIX -- Blue Chips Back Above 20,000
Hong Kong Blue Chips: +339, +1.7%, to 20,204, 08-30-11, Hang Seng Index
Chinese Stocks in Hong Kong: +235, +2.2% to 10,747, 08-30-11, HSCE Index
Shanghai Stocks: -0.4%, 2,567, 08-30-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: +8.8 to 398.2, 08-29-2011, Bank of New York Mellon, ADR Index-China
Insight: Encouraging news about higher U.s. consumer spending and a Greek bank merger pushed Hong Kong higher in heavier trading. In addition, completion of Bank of America's sale of stocks in China Construction Bank (0939) removed uncertainty from the market. CCB rose 1.8%. Clothing company Giordano (GRDZF) soared 18.1% after reporting an interim profit rise of 71%. KGI Research
Quotable: "Particularly, we believe that the short-term sentiment of the index will remain yo-yoing without any clear direction. HSI will be trading within the range of 19,200 to 21,000." Core Pacific Yamaichi. 8-30-2011
Chinese Company to Watch: China Sands (SCHYY), Macau unit of Las Vegas Sands (LVS). "We expect the new business to start contributing earnings in 2012,while the core business will maintain posting favorable results in the next a few years." CFSG. 8-30-2011
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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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