Preliminary agreement by U.S. politicians to raise the debt ceiling and avoid default boosted China stocks in Hong Kong, but the result was surprisingly modest given the drama around the debt ceiling impasse.
The gain for the blue-chip Hang Seng Index was solid, but not spectacular, and the index closed near the day-low, well off highs posted in early trading. In addition, turnover was weak. The question arises, with less-than-exuberant momentum from the U.S. news, can the market sustain gains?
Yes, according to Benny Wong, head of research at BOCOM International. Gains won’t be steep, he said, but Hong Kong stocks are primed for a rally.
Gradually Higher in August
“The Hong Kong market has been weak for the last three months,” Wong told Equities. “The gradual trend will be higher in August.”
Looking toward strong results coming from retailers soon, BOCOM likes the consumption sector. Footwear company Belle International (1880 in Hong Kong) is one of Wong’s picks.
He also thinks the U.S. dollar will continue to be weak, helping commodity and gold stocks.
Machinery stocks are predicted to report good profits for the first half of 2011, Wong said, but nothing exceeding expectations. But he thinks strong order bookings for the second half of the year will make the sector attractive. He likes Lonking (3339), a manufacturer and distributor of excavators and other infrastructure equipment.
Soft Landing for Chinese Economy
In addition to the preliminary debt ceiling agreement, another bit of good news Monday was that China’s official July PMI came in at or slightly above expectations at 50.7. This points to a gradual decline in Chinese economic growth caused by the fight against inflation. “We think there will not be a hard landing for the Chinese economy,” Wong said.
After the market closed giant HSBC announced an unexpected rise in profits to US$11.5 billion, which might give the market a lift Tuesday. End
DAILY FIX — U.S. Debt Ceiling Accord Lifts Market
Hong Kong Blue Chips: +232, +1.0%, to 22,663, 08-01-11, Hang Seng Index
Chinese Stocks in Hong Kong: +166, +1.4% to 12,540, 08-01-11, HSCE Index
Shanghai Stocks: +0.1%, 2,704, 08-01-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: N.A.to 441.8, 07-29-11, Bank of New York Mellon, ADR Index-China
Insight: Preliminary agreement to raise the U.S. debt ceiling boosted blue chips above the 50-day moving average, but gains were capped by the 250-day moving average level. Solar energy play GC Poly (3800) rose 4.8% KGI Research
Quotable: “Looking into next week, investors would focus on the results announcements of the banking counters, including HSBC, Hang Seng Bank (both on Monday), Standard Chartered (Wednesday) and the Bank of East Asia (Thursday). Attention should also be given to the upcoming US economic figures (personal spending & unemployment rate) to be released next week. Any positive surprises from corporate earnings may drive the HSI to test its resistance of 22,800 set in early July.” BEA Securiteis. 7-29-2011
Chinese Company to Watch: Container shipping company OOIL (0316) “Thanks to the company’s shrewd management, we still rate the stock a Buy, though our target price is tuned down to $52.00, which represents a P/B of 1x and a forward P/E of 12x.” Haitong Securities. 7-29-2011
Brokerages and analysts cited 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
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