China Stocks Sink after Fed Shuns QE3

Gene Linn |

China Stocks Poised for A RallyChina stocks ended their five-day rally Thursday as the U.S. Federal Reserve quashed hopes of an imminent rush of stimulus money into the economy. Expectations the European Central Bank would move decisively to prop up the Euro, which set of the rally, also wavered.

And it’s hard to see any dramatic development on the China front to give stocks a big boost according to one analyst.

The Hang Seng Index in Hong Kong had jumped almost 5% since last Thursday, but fell 0.7% to 19,690 in reduced turnover. The index of Chinese companies slumped 1.0% to 9,669.

One observer who has been consistently, and correctly, pessimistic about China stocks this year doesn’t see much hope for a sustained rally the rest of the year.

“On a 6-12 months horizon, it is hard for the HSI (Hang Seng) to advance substantially…,” he told Equities in an email.

The analyst asked that we not use his name or the name of his brokerage. He said the market will “either (i) continue to range trade, (ii) fall substantially due to eruption of the European debt crisis.”

Numerous analysts expect significant Chinese economic loosening measures to spur a turnaround in the economy and stocks. But the observer quoted above begs to differ. He thinks China will give only “lip service” to support of the economy, choosing moderate steps to avoid more inflation and wasted money. China will not make substantial changes in policy until after new leaders are in place next year, he said.

The only possible good news in the near term is the Fed launching a new round of quantitative easing -- QE3.

Otherwise, investors will have to carefully pick the right sectors and stocks to make money, the analyst said. End

DAILY FIX

Hong Kong Blue Chips: -130, -0.7%, to 19,390, 08-02-12, Hang Seng Index

Chinese Stocks in Hong Kong: -93, -1.0%, to 9,669, 08-02-12, HSCE Index

Shanghai Stocks: -12, -0.6% to 2,111, 08-02-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -1.2, 368.9, 08-01-12, Bank of New York Mellon, ADR Index-China

Insight: After its recent rally Hong Kong opened lower and continued to drop after the U.S. Fed indicated there would be no QE3 soon. Turnover fell back to the weak range it occupied before the rally. Chinese construction plays retreated: China Railway Construction (CWYCY) -3.5%. KGI Research

Quotable: "HSI will continue to rebound and test the resistance at 20,000." Core Pacific Yamaichi. 8-2-12

Chinese Company to Watch: "The cement industry is in recession now, but with the support of economy stimulus policy from the government in the second half year of 2012, the market demand may rebound and improve the operation results of Anhui Conch (AHCHY)." Phillip Securities. 8-2-12

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

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
WPG.P.I Washington Prime Group Inc. 6.875% Series I Cumula 26.49 -0.14 -0.53 1,589

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