China stocks continued on Friday to recover from steep losses in the first three days of the week, helped by lower-than-expected Chinese inflation figures. But the modest rally faces headwinds next week.
The Hang Seng Index in Hong Kong rose 0.9% Friday to 21,086 in thin trading, and the index of Chinese companies climbed 0.8% to 11,256.
Although the Hang Seng finished above the 21,000 resistance level, it closed 2.2% lower than last Friday. The index of Chinese companies fell 4.1%.
This week’s late upturn got a boost Friday from a big drop in Chinese inflation. The February figure plunged to 3.2% from January’s 4.5%.
The decline resulted partly from the fact the lengthy Chinese New Year holiday occurred in January this year after coming in February last year. Still, the retreat was greater than expected and gives Chinese officials more room to stimulate the struggling economy.
Investors are also encouraged by strong U.S. economic data and improved prospects for resolving the Greek debt crisis, said Ben Kwong, chief operating officer at KGI Asia.
However he also told Equities in an email that potential fund raising pressure and concern over emerging market stagflation weigh on China stocks.
“We expect the market to continue its consolidation in the coming week,” Kwong said.
Next week China’s plans to increase consumption by cutting taxation, he said, aiding that sector.
The market focus will be on results announcements from technology giants China Mobile (CHL) and Internet company Tencent (TCEHY), according to Kwong. End
Hong Kong Blue Chips: +185, +0.9%, to 21,086, 03-09-12, Hang Seng Index
Chinese Stocks in Hong Kong: +88, +0.8%, to 11,256, 03-09-12, HSCE Index
Shanghai Stocks: +0.8% to 2,439, 03-09-12, Shanghai Composite Index.
Chinese Stocks in the U.S.: +7.2, 408.0, 03-08-12, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong blue chips crept above the 21,000 resistance level on gains in U.S. markets. Turnover continued to be thin. Heavyweight China Mobile (CHL) rose 4.0%. Shipping plays were strong: Cosco Pacific (CSPKY) +4.2%. KGI Research
Quotable: "We believe the stock market will continue to consolidate in near term. Defensive plays like telecom and consumption stocks are likely to outperform. Our top pick for short-term trading is China Unicom (CHU) among the index stocks." Guoco Capital. 3-9-12
Chinese Company to watch: "Government policies are targeting modern agricultural technology. First Tractor (FIRRF) and other producers of agricultural equipment will benefit." CCB International. 3-6-12
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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
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