China Stocks Rise on Another Sign of Economic Recovery

China stocks on Thursday continued to bounce back from a mini-consolidation, but one analyst thinks a balance of positive and negative factors will lead to volatility in coming weeks.

Hong Kong’s Hang Seng Index climbed 0.8% to 21,822 in heavier trading, and the index of Chinese companies rose 1.1% to 10,701.

The big positive news was that an encouraging PMI figure indicated Chinese manufacturing was bouncing back after a long slump. A steady flow of foreign cash into Hong Kong is another plus.

But negatives include the Hong Kong government’s measures to curb the overheated property sector and cyclical factors such as profit-taking in high-flying Chinese cement and shipping sectors, according to Ben Kwong, chief operating officer at KGI Asia.

Given these mixed factors, he told Equities in an email, “we believe that (the) local market is expected to (be) volatile after (the U.S.) election, but the direction remains unclear at the moment.”

In the uncertainty, investors should focus on picking sectors and stocks rather that keying on the overall index, Kwong said.

The inflow of money will help small to medium-sized banks like the Bank of East Asia (BKEAY), he said, and earnings are improving for some infrastructure companies like China Railway Construction (CWYCY). End

DAILY FIX

Hong Kong Blue Chips: +180, +0.8, to 21,822, 11-01-12, Hang Seng Index

Chinese Stocks in Hong Kong: +119, +1.1%, to 10,701, 11-01-12, HSCE Index

Shanghai Stocks: +36, +1.7% to 2,104, 11-01-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -4.4, 386.8, 10-26-12, Bank of New York Mellon, ADR Index-China – closed by storm

Insight: Hong Kong opened down 67 points but turned around after release of an encouraging PMI number pointed to recovery in Chinese manufacturing. Turnover rose. Infrastructure plays gained: CNBM (CBUMY) +5%. KGI Research

Quotable: “As local property stocks will be out of favor in near term, we believe the Hang Seng Index is unlikely to surpass 22,000 in November while the HSCEI will continue to outperform the Hang Seng Index.” Guoco Capital. 11-01-12

Chinese Company to Watch: Infrastructure company CNBM (CBUMY) “Traded at 6.4x 2013 PER with EPS growth of 27% in 2013, we think CNBM’s valuation is not demanding.” Guoco Capital. 11-1-12

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