China Stocks Rise Again

Gene Linn  |

China stocks are on the way back up, for now, buoyed by optimism of an easing of the European debt crisis.

The Hang Seng Index in Hong Kong finished up 0.5% to 21,680 in higher turnover. The index of Chinese companies rose 0.6% to 11,827.

The Hang Seng retreated on February 20 from a run at 21,800 and bounced up and down until a a solid rise this Tuesday and Wednesday.

A big reason for Wednesday’s increase is the expectation the European Central Bank will approve another large infusion of money into the struggling European financial system, said Conita Hung, head of equities at Delta Asia Financial. “That improved market sentiment,” she told Equities.

News from the HSBC preliminary Chinese purchasing managers index announced Wednesday was mixed. The PMI for February rose to 49.7 from 48.8 in January, but still indicated Chinese manufacturing is continuing to contract.

But with the recent gains, Hung thinks momentum will carry the Hang Seng past 21,800 to test 22,000, maybe this week.

“In Hong Kong the focus is not on blue chips,” she said, “with the index at this [high] level and the risk of a market adjustment. Investors are chasing quality second liners and Chinese stocks.”

Chinese environmental and agricultural stocks are strong because they stand to gain from policies that will be announced at China’s National People’s Congress next week.

One attractive environmental company, Hung said, is China Everbright International (0257.HK). First Tractor (FIRRF) is a rising stock in the agricultural sector, she said. End

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Hong Kong Blue Chips: +111, +0.5%, to 21,680, 02-29-12, Hang Seng Index

Chinese Stocks in Hong Kong: +65, +0.6%, to 11,827, 02-29-12, HSCE Index

Shanghai Stocks: -1.0% to 2,428, 02-29-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +7.5, 418.7, 02-28-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong lost some early gains when exchanges on the Mainland slumped, but regained momentum to extend Tuesday's rise in heavier trading. The focus was on the Chinese PMI for February, which was higher but sill showed contraction in manufacturing, and prospects that the European Central Bank would aid Europe's struggling financial sector. KGI Research

Quotable: "Market sentiment remains bullish. Our short-term target for the Hang Seng Index remains unchanged at 22,000." Guoco Capital. 2-29-12

Chinese Companies to watch: "Environmental protection initiatives laid out in the 12th FYP (Five Year Plain) will require an investment of RMB3.4t, equivalent to c.1.4% of the GDP over the same period. Recycling equipment will need to be developed, and a new system for new materials and sewage treatment put in place. Metal recyclers, including Chiho-Tiande (0976.HK) and China Metal Recycling (0773.HK), would likely benefit from policy support in this area." CCB. 2-27-12

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